Tax Experts: 8 Tax Moves To Make So You Don’t Get Audited
Written by
Sean Bryant
Edited by
Amen Oyiboke
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Getting audited on your taxes is a common fear among taxpayers. Fortunately, the IRS only audited 3.8 out of every 1,000 returns, or 0.38%, during the fiscal year 2022, according to a 2023 report from Syracuse University’s Transactional Records Access Clearinghouse. While IRS audits are rare, there are certain tax moves you can make to help avoid getting audited.
Keep reading as we dig into some of the tax moves you must make this year to help avoid a tax audit.
Report All of Your Income
Be sure to report all income you received during the year. This includes freelance work you have done, interest earned on bank accounts, capital gains from investment sales, and more.
If you want to avoid a tax audit, it’s critical to report all income, even small amounts. The IRS receives copies of all 1099 forms you receive, so they will know if you don’t report income. Even if you didn’t receive a 1099 for freelance work, it should still be reported on your tax return.
“Make sure income from all sources is reported,” said Crystal Stranger, Chief Executive Officer, OpticTax.com. “The most common audit letters I see are because of a forgotten 1099 form that was not reported on the tax return. Especially 1099-k forms tend to be problematic, as the gross income reported is usually higher than the net income received from the platform.”
Double-Check Your Work
Math errors or other discrepancies spark many IRS audits. Make sure all government-issued forms match what you report on your tax return. Double-check your math to be sure you don’t have any errors. Filing electronically can help you avoid errors to some degree because the software is designed to catch many common mistakes. However, filing an electronic return instead of a paper return isn’t a factor in determining whether you will get audited.
“Carefully review your completed tax return for any incorrect information, transposed numbers, missing forms, or calculation errors before filing,” said Alec Kellzi, CPA at IRS Extension Online. “E-filing helps minimize mistakes. Finding and fixing any mistakes upfront demonstrates good faith reporting and compliance. Filing an error-prone return makes an audit much more likely.”
File On Time
There is a misconception that you are more likely to get audited if you file your tax return earlier in the tax season because there are fewer returns to pick from. However, filing late isn’t a good way to avoid an audit. Filing and paying your taxes on time will create a history of compliance, which will help you avoid an audit.
Use Exact Numbers When Possible
Round numbers could be seen as suspicious to the IRS. For example, rounding up an expense to the nearest $100 may look like you don’t actually know the cost of the expenses and are making up numbers.
However, It is acceptable to round up to the nearest dollar instead of including cents in the return. For example, you could round an expense of $89.66 up to $90. The IRS also expects expenses to change from year to year to some degree. That change should be within a reasonable amount unless you can provide proof otherwise.
Answer Every Question
Don’t leave any questions blank, even if the appropriate answer to the question is $0. The IRS may look closer at tax returns with unintentional oversights like blank answers.
Don’t Make Excessive Deductions Compared to Your Income
If you claim deductions that are out of proportion to your income, it might cause the IRS to take a closer look at your return. For example, claiming 60% of your reported income as deductions will likely raise a red flag. However, if you have legitimate deductions that make up a large percentage of your income, you should claim them accurately. If you do this, be ready to supply proof of everything in the form of documentation. Also, claiming significant deductions compared to previous years could cause the IRS to look closer at your returns.
“Do not take aggressive tax positions or deductions that could be perceived as pushing the limits,” said Kellzi. “Even if an audit validated them, questionable deductions send the wrong message to the IRS. Play it safe.”
Complete Additional Paperwork If Warranted
Completing additional paperwork to explain an unusual expense or situation on your tax return can help prevent the IRS from needing to audit you. Any potentially suspicious numbers would already be explained, so if your tax return is flagged, the IRS employee can find the answers to their questions without contacting you. This is especially important if you are a business owner with fluctuating expenses.
Sign Your Tax Return
It may seem silly, but submitting a tax return without signing it is more common than you might think. If the IRS receives a tax return that isn’t signed, it may cause them to take a closer look. Be sure to double-check that you have signed your return before you submit it electronically or by paper.
The Bottom Line
The IRS audit process has a three-year timeline, so taxes filed up to three years ago could still get picked for audit. Unfortunately, you could follow all of these recommendations to avoid an audit but still get selected. To be prepared, save receipts and documentation for everything for at least three years after filing your taxes. If you receive a letter from the IRS that you have been selected for audit, respond promptly with copies of the requested documents and be honest with the auditor.
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