Tax Filing Mistakes That Could Increase Your Risk of an IRS Audit

Filing taxes can be complex, and even the most diligent taxpayers may occasionally make mistakes. While many minor errors won't lead to an audit, some mistakes could raise red flags with the IRS and trigger a closer inspection of your tax return. To help you avoid unnecessary stress, here are some common tax filing mistakes that could increase your chances of being audited.

Mathematical Errors

One of the simplest mistakes, but one that can easily trigger an audit, is mathematical errors. Mathematical errors are red flags for the IRS, whether incorrect addition or subtraction, a missed decimal point, or miscalculating credits and deductions. These mistakes can make it seem like you need to be overreporting or underreporting your income or expenses, prompting the agency to question the accuracy of your return.

To avoid this, double-check all calculations before submitting your return. Using tax software can help catch these errors automatically, and if you're filing manually, take your time and use a calculator when necessary.


Incorrect Social Security Numbers (SSNs)

An incorrect Social Security Number (SSN) on your tax return is a common mistake, especially if you're claiming dependents. The IRS matches the SSNs provided on your return with the information in their database; even a small typo can cause issues.

To avoid problems, double-check all SSNs for accuracy, including those of dependents and spouses. If you need clarification on the correct number, refer to the individual's Social Security card or other official documents. It's also essential to ensure that your name matches the one on file with the Social Security Administration, as even a mismatch here could cause an issue.


Claiming Deductions or Credits You're Not Eligible For

Taxpayers often attempt to claim deductions or credits they're not entitled to, whether due to misunderstanding the rules or trying to reduce their tax liability. Common examples include:

  • Claiming deductions for dependents you don't support.
  • Taking credits for education expenses, you should have paid.
  • Improperly claiming home office deductions.

To avoid triggering an audit, ensure you're eligible for any deductions or credits you plan to claim. For instance, if you claim you're the Earned Income Tax Credit (EITC), the IRS will verify your income level and family size. Claiming false deductions or credits may lead to penalties, interest, and even criminal charges in extreme cases.


Failing to Report All Income

The IRS receives copies of all the income you report on your tax return from your employer, financial institutions, and other sources. If you forget to document some of your income—whether from a side gig, freelance work, or investment gains—the IRS will likely catch it, especially if they receive a form like a 1099 or W-2 showing a higher income than you reported.

Make sure to include all sources of income on your tax return, even if the amount is small or doesn't come with a tax form. The IRS can cross-check this information against what was reported by third parties and flag discrepancies.


Claiming Excessive Business Expenses

If you're self-employed or own a small business, you may be eligible for tax deductions related to business expenses. However, some taxpayers claim inflated or exaggerated business expenses, such as high meal deductions or claiming personal expenses as business costs.

Be prepared to provide documentation for any business expenses you claim, such as receipts, invoices, and bank statements. The IRS may scrutinize large deductions, especially if your income is modest. Remember that claiming excessive or unsubstantiated deductions can raise a red flag and trigger an audit.


Overstating Charitable Contributions

Donating to charity can provide a valuable tax deduction, but claiming deductions for charitable contributions you didn't make can lead to an audit. The IRS is especially wary of individuals who claim large philanthropic deductions without proper documentation, such as receipts or acknowledgment letters from the organization.

If you're claiming charitable contributions, ensure you have accurate records of your donations, including dates, amounts, and the recipient organization's name. Cash, goods, or property donations must be documented with appropriate receipts or proof of the donation.


Filing Under the Wrong Status

Selecting the wrong filing status on your tax return can significantly impact your tax liability. It may trigger an audit if it seems inconsistent with the information the IRS has on file. For example, married taxpayers might try to file as "Head of Household" to get a larger standard deduction, even if they don't meet the qualifications.

If your filing status needs to be corrected, the IRS might flag your return for further investigation. Select the correct filing status (Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow) based on your circumstances.


Missing or Incorrect Documentation

The IRS requires specific documentation to back up the claims on your tax return, such as W-2 forms, 1099 forms, and receipts for deductions. Failing to include required documentation or providing incorrect or incomplete forms could raise questions and lead to an audit.

Ensure you keep thorough records of all income, deductions, and credits. If you still need to include any documents, request them from the appropriate sources before filing. It's always better to file late with the proper documentation than to risk triggering an audit with missing paperwork.


Filing Late or Not Filing at All

Failing to file your taxes on time, or not filing at all, can also increase your chances of an IRS audit. The IRS may view late filings as suspicious, especially if you owe taxes. Even if you can't pay your taxes immediately, it's better to file on time and request a payment plan rather than skip filing altogether.

Suppose you need more time to prepare your return and file for an extension. Remember, an extension gives you more time to file but does not extend the time to pay any taxes owed.


Not Reporting Foreign Income or Assets

If you have foreign income or assets, such as a bank account or investments overseas, you must report them to the IRS. Please do so to avoid severe penalties. The IRS has sophisticated systems to detect unreported foreign income.

Report any foreign accounts, income, or assets on the appropriate forms, such as the FBAR (Foreign Bank Account Report) or Form 8938. Transparency with the IRS regarding foreign income is crucial to avoid audits and penalties.

While the IRS conducts audits on a small percentage of returns, avoiding these common mistakes can help reduce your chances of being flagged for a closer inspection. By paying attention to the details, keeping accurate records, and staying informed about tax laws, you can ensure that your tax filing is as accurate and error-free as possible. If you need clarification on any aspect of your taxes, consider consulting with a tax professional to help navigate the complexities of the process.

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