Updated: May 25, 2023

Tips to Avoid a Tax Audit by the IRS

Tips on how to properly prepare your taxes to avoid being audited by the IRS. How to avoid setting off common red flags and triggers for tax audits.
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Filing taxes can bring on a big headache, especially if you have a lot of forms and complicated deductions. The last thing anyone wants when filing taxes is to end up being audited by the Internal Revenue Service. Even honest mistakes can flag a tax audit, so it is crucial to file correctly.

Flickr | https://www.flickr.com/photos/dboeke/4533716418
Flickr | https://www.flickr.com/photos/dboeke/4533716418

There is no substitute for having a qualified, registered tax preparer put your taxes in order, and no article on the Internet is an adequate replacement for several meetings with a certified financial planner throughout the year to understand what to watch. That said, there are a few tips and common sense strategies to avoid being subjected to an income tax audit.

How many people get audited annually?

Kiplinger notes that the IRS has had its budget trimmed and has a slim staff, which may decrease the chances of being audited. Typically,  only about 1 percent of all returns are selected to be audited. Kipliger also noted that those making in excess of $200,000 were more likely to come under scrutiny. However, anyone can be subject to an audit, even if mistakes aren't made when filing.

Check it twice

Double-check your return for typos or other errors. It's easy to make a mistake, even on something you might commonly type or write out, like a Social Security number. Check the math for accuracy, as mathematical mistakes could easily appear as a red flag to the IRS. Be certain all of the supporting documents and forms are present and in order.

Be wary of unregistered preparers

Just because Uncle Joe boasts about the big savings his pal Barney drums up for him every year for a low fee, that doesn't mean Barney knows what he is doing or is preparing Joe's tax documents honestly. Skip the shady friend-of-a-friend amateurs and hire a professional, or use a highly-rated software package or online service to assist with the job.

Report all of your income

When you receive a W-2 or 1099 form, so does the IRS, and they have computers which can verify that they have been reported. Make sure all of these forms are present. If you do freelance or contract work and are expecting 1099 forms from prior work, have a list of all of the jobs and verify 1099 forms have been received for all of them, including those sent electronically.

W-2 and 1099 forms (required only for contractors who received more than $600 in pay) are due by January 31. If you are uncertain about whether or not you have received all of the forms from all jobs, hold off on filing until after that date, and make contact about any which are still outstanding.

Deficit giving

The IRS has limits on charitable contributions which can be counted as credit against your income. Charitable deductions are usually limited to 50 percent or less. Anyone reporting an unrealistic amount of money given away in comparison to how much is left for living expenses could catch the suspicion of IRS auditors. Donations must also be well-documented with a bank record, so be careful about overstating how much you've tucked into charity containers in the grocery check-out line. If you can't document it, don't claim it.

Credit where credit isn't due

Be wary of taking tax credits for which you might not qualify, even if someone else who claims to know something about taxes but isn't licensed tells you they are OK to claim. If there is any doubt about eligibility, even after carefully reading IRS forms and publications and following worksheets, the best thing to do is consult with an expert. A registered tax preparer can provide guidance about confusing tax codes, and possibly save you more money than they charge to help with your tax return. Free help may be available to single and family wage earners making less than $72,000.


Tip earners

Bartenders, servers, and others who rely heavily on tips as compensation need to be careful about accurately reporting income. Any compensation through cash tips must be reported to the IRS, which expects workers in such jobs to make a minimal amount. Under-reporting can set off a bright red flag to IRS agents, so the income reported should be accurate.

What happens in an audit?

Anyone selected for an audit will be asked to document all claims made on their tax return. This means all paperwork, forms, bank statements, and other records related to income and taxes should be stored safely and in an orderly fashion for several years. Don't worry; unless there is clear and obvious fraud, you won't be going to jail. If more money is owed, the IRS will ask you to pay it, and may include a penalty.

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