As you prepare your tax return, you may be wondering if there is anything you can do to avoid being checked.
When you are audited by the Internal Revenue System, it means that your return has been selected from a batch of returns for further inspection. Sometimes returns are randomly selected for further review.
But the IRS can’t afford to review everyone’s tax returns. That’s why the agency uses an algorithm to spot potential red flags in returns that need to be corrected to reduce underpayments to the IRS and increase tax revenue.
But if you can fix some of these red flags that can trigger an audit before submitting your return, you might be able to avoid being audited.
What if the IRS audits you:What to Know About IRS Audit Letters and More
How do the rich avoid taxes? :Wealthy Americans bypass $160 billion a year in tax payments
What triggers an IRS audit?
Many audit notices sent by the IRS are automatically triggered if, for example, your W-2 income tax form shows you earned more than you reported on your return, Erin Collins said. , National Taxpayer Advocate to the Taxpayer Advocate Service division of the IRS.
That’s why Collins recommends that taxpayers make sure the income they report on their returns matches the income shown on official income tax documents like a 1099 or a W-2.
“We find that many taxpayers take their last pay stub (of the year) and use that number,” she said. But they may run into trouble because that latest pay stub may not cover their typical pay period.
She also recommends parents discuss who will claim a child on their return if they file separate returns. They must also ensure that additional guardians, such as a grandparent, do not attempt to claim a child upon their return if they do not meet IRS requirements to do so. Alternatively, an audit may also be triggered if multiple people attempt to claim the same child as a dependent on their returns.
Audit statistics:Black taxpayers are audited at least three times more than non-black taxpayers, study finds
A guide to tax season 2023 for new parents:What to know about the Child Tax Credit, EITC and more
Although not technically an audit, Collins said, the IRS has sent the majority of notices over the past two years to taxpayers who miscalculate. These were unusually high because taxpayers were not adjusting their income properly after receiving enhanced child tax credits or stimulus checks.
Michael Steffany, senior tax attorney at Withersworldwide, said from his experience that “the IRS focuses its efforts on the items most likely to result in a large amount of additional tax owed.”
“We continue to see high net worth taxpayers, as well as non-U.S. income taxpayers and foreign entities, being a particular point of focus,” he added.
How does the IRS choose who to audit?
The IRS says audits can also typically be triggered by a random selection process in which a computerized system compares your return “to the ‘standards’ for similar returns,” the IRS said in an online post.
Another trigger for verification is if the information on your statement is linked to that of someone else, such as a business partner or investor, who is being verified.
Tax refund update:Average tax refund down nearly 11% from a year ago for first-time filers
Tax declaration season 2023:What you need to know before filing your taxes
Who is audited the most by the IRS?
In terms of income levels, the IRS has in recent years audited taxpayers with incomes below $25,000 and above $500,000 at above-average rates, according to government data.
Treasury Secretary Janet Yellen and Acting IRS Commissioner Douglas O’Donnell said the nearly $80 billion the IRS will receive from the Inflation Reduction Act will not be used to increase audits above historical levels for taxpayers earning less than $400,000 a year.
Steffany said the influx of funds is likely to increase the number of audits for high earners, which has declined in recent years. Collins said this was due to funding issues faced by the IRS.
Chances of being audited by the IRS
Last year, 3.8 out of 1,000 returns, or 0.38%, were audited by the IRS, according to a recent report using IRS data from Syracuse University’s Transactional Records Access Clearinghouse.
Elisabeth Buchwald is personal finance and markets correspondent for USA TODAY. You can FFollow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here