I Asked ChatGPT Which Tax Mistakes Trigger Audits: Here’s What To Avoid
Written by
Heather Altamirano
Edited by
Jenna Klaverweiden
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Tax season is a major headache. Between gathering important financial documents, keeping up with ever-changing tax codes and feeling the pressure of tight deadlines, it can be a dreadful time. Plus, there’s the worry of making a mistake that could cost you.
To help avoid a tax error that could trigger an audit, GOBankingRates asked ChatGPT how to sidestep a blunder. Here’s what the artificial intelligence (AI) chatbot suggested.
Also see the top mistakes self-filers make and how to avoid them.
Not Reporting All Income Is an Audit Waiting To Happen
When you’re a freelancer or gig worker, side hustler, or investor, it’s easy to forget every form of payment or financial gain, but that’s risky because the IRS receives copies of all of your W-2s, 1099s, 1099-Ks and brokerage statements.
“If you omit income — even accidentally — the mismatch is automatically flagged by IRS matching systems,” ChatGPT said.
Documenting all cash payments through platforms like Venmo and PayPal can help keep records accurate and make tax time far less stressful.
Beware of Excessive Business Deductions (Especially for Sole Proprietors)
Write-offs are allowed for certain business expenses, such as meals, travel, home office expenses and more. “Schedule C filers who report relatively low income but high expenses may draw scrutiny,” ChatGPT said.
A red flag to watch out for is a business that reports losses for too many years, which could be audited to determine whether it’s a real business or a hobby, per TurboTax.
Claiming the Home Office Deduction Incorrectly
Some remote workers can deduct their home office expenses, but there are strict rules to follow. The space must be used for an office specifically. Furthermore, the deduction is available only to freelancers and self-employed workers, not to W-2 employees.
ChatGPT said that trying to deduct a multipurpose room could raise eyebrows at the IRS.
Don’t Fall For Round Numbers Everywhere
Accuracy is important when filing taxes, and according to the AI, too many rounded numbers could prompt the IRS to look closer at your paperwork.
“While not illegal, returns filled with perfectly rounded numbers (e.g., $5,000 in supplies, $2,000 in utilities) can look estimated rather than documented,” it said.
Rounding is tempting because it makes math less complicated, but it could also trigger attention from the IRS.
Cryptocurrency Transactions Not Reported Is a Risk Factor
Crypto is looked at as property by the IRS, so selling, trading or other transactions must be reported. Failing to disclose those transactions can result in penalties, interest and increased IRS scrutiny. “The IRS now asks directly about digital asset activity at the top of Form 1040 — making omission riskier than ever,” the AI said.
Everyone’s tax situation is different, but being prepared and knowing about common mistakes to avoid can significantly reduce your risk of an audit.
More From GoBankingRates
