How to avoid an IRS audit

One of the most common questions a tax attorney gets asked is: How do I avoid an IRS tax audit?

Fortunately, the odds of getting audited by the IRS are fairly low. Still, there’s no guarantee that you won’t get contacted by the IRS and face scrutiny after you’ve filed your taxes.

The tax filing deadline for 2021 has been extended to May 17, about a month later than usual. Whether you’re filing early or at the last minute, you will want to be aware of ways to minimize your chances of facing an IRS tax audit.

Red flags that can prompt an IRS audit

Here is a list of risky moves that could prompt an audit by the IRS, according to an article in Investopedia:

• Overestimating donations: The IRS encourages charitable gifts. Anything you donated, whether it’s clothing, food, or even your car, can work in your favor come tax time. You may receive a deduction. However, taxpayers might run into IRS trouble if they overinflate the value of a donated item. Generally, the value should not exceed 30% of the original purchase price.
• Number errors: You’re working with a lot of numbers when filing taxes, so it’s not uncommon to make a math error. Unfortunately, an honest mistake could trigger an audit. Double-check your work to make sure the numbers are correct. Keep a close eye on the total dollar value of capital gains and/or losses to ensure accuracy. Be sure to use common sense. If the numbers in your tax return don't make sense or something seems wrong, you may have missed something.
• Forgetting to sign the return: Like math errors, failing to sign a return is usually an honest mistake. While it might seem like a minor error, your failure to sign the return almost always prompts further scrutiny by the IRS.
• Hiding or underreporting income: You might work full-time or collect freelance income through a “side hustle.” You might have made a profit after selling your home. While it might be tempting for some, it’s a risky move to underreport any of your income. The IRS does not take such cases lightly. If the agency finds out you underreported your income, you could be ordered to pay back-taxes on top of penalties and interest.
• Home office deductions: There’s no reason why you should not declare a home office deduction if you meet the criteria. However, some taxpayers go overboard with this deduction. They declare all of their monthly rent or inflate the size of their home office. You also can declare work-related expenses as part of the home office deduction. One IRS red flag is linked to taxpayers who list deductions that are too large in proportion to their income.
• High incomes: Your audit risk increases if you earn more than $100,000 a year. There’s nothing you can do to lower your risk if you are part of that income bracket.

You don't have to confront the IRS alone

When filing your federal taxes, you want to be accurate, honest, and modest. Understand that certain red flags may prompt an IRS audit. Still, even the most careful tax filers can get contacted by the IRS with questions over their return.

An IRS tax audit is a stressful experience, but you don’t have to face the problem on your own. At The Law Firm of Brown & Jensen in Arizona, our legal team can help guide you through the entire process and work to get a favorable outcome in your case.

Founding partner Shad M. Brown is a former IRS tax attorney who knows how the system works. Find out how we can help with your case and contact us today for a free consultation. We have offices conveniently located in Mesa, Tucson, Scottsdale, Chandler, Peoria, Goodyear, Show Low, and Payson.