The IRS is currently in the process of developing strategies to avoid increased audits on taxpayers making less than $400,000. However, experts caution that specific details in your tax return can still trigger scrutiny regardless of income level. The Treasury Inspector General for Tax Administration recently reported that the IRS has only made “limited progress” in creating the methodology for its audit coverage calculation as mandated by the U.S. Department of the Treasury. Despite receiving $80 billion in funding from Congress, with a significant amount earmarked for enforcement, the IRS was directed by the Treasury not to utilize these funds for increased audits on small businesses or households earning less than $400,000 annually.
While the IRS has agreed to implement TIGTA’s recommendations and document the development of its audit methodology, the agency continues to concentrate its enforcement efforts on high-income earners, large corporations, and complex partnerships. The Treasury Department recently announced that $1.3 billion has been recovered from “high-income, high-wealth individuals,” emphasizing the importance of holding the wealthy accountable for tax evasion practices.
Tax experts have highlighted certain red flags that could trigger an IRS audit, regardless of income level. Missing income is a significant indicator, as various entities report income directly to the IRS through information returns like Forms W-2 or 1099. Failure to accurately report this information can lead to the IRS flagging incomplete filings, which may result in an audit. Additionally, cryptocurrency investors are now subject to IRS scrutiny following the finalization of cryptocurrency tax guidance, with mandatory yearly reporting set to begin in 2026.
Inaccurate deductions are another common issue that can invite IRS audits. Claiming unreasonable deductions, such as significant charitable contributions compared to one’s income, can raise suspicions and prompt closer examination from the IRS. It is essential to maintain detailed documentation to support any tax breaks claimed, as failing to provide adequate proof during an audit could result in disallowance of credits or deductions.
Despite the focus on certain high-risk areas, it is essential to note that IRS audits are still relatively rare. Between 2013 and 2021, the IRS examined only 0.44% of individual returns and 0.74% of corporate returns. This data underscores the importance of accurate and thorough tax reporting to minimize the risk of triggering an audit.
While the IRS continues to refine its audit strategies and enforcement priorities, taxpayers must remain vigilant in accurately reporting their income and deductions to avoid scrutiny. By understanding the potential red flags and audit triggers outlined by experts, individuals can mitigate the risk of facing an IRS audit and ensure compliance with tax regulations.
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