Tax season 2023: Mistakes to steer clear of to avoid being audited by the IRS
Asher Notheis
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The United States is in the middle of tax season, with many taxpayers fearing the possibility of being audited by the IRS.
The IRS describes an audit as a review or examination of someone’s “accounts and financial information to ensure information is reported correctly according to the tax laws,” as well as to confirm “the reported amount of tax is correct.” Such an audit can be avoided if taxpayers dodge making these mistakes when filing their taxes, according to Yahoo Finance.
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Failing to report all of one’s income
Both a taxpayer and the IRS will receive a W-2 reporting all of their income at a job the taxpayer works. If a taxpayer files their tax return and their information regarding their earnings over the past year does not match up with the documents the IRS has, it is all but guaranteed a person will be audited by the IRS.
Taking outsize deductions
Business owners tend to be audited more than workers due to the fact that the former have access to various tax deductions not available to their worker counterparts. If a person claims a deduction, such as one for health insurance or internet costs, that is larger relative to income than similar businesses, that person could be audited.
Erroneously claiming tax credits
Claiming tax credits when one is filing taxes can reduce one’s tax liability and refund some money from the IRS. When claiming tax credits, a person ought to document their qualifications for the credits before they file their taxes.
Writing off personal or hobby expenses as business losses
Both personal and hobby expenses cannot be qualified as business losses when filing one’s taxes. A personal expense, such as travel or a car repair, cannot be claimed as a business loss when one is a stay-at-home worker. Likewise, the IRS generally considers a “business” to be a hobby if the business fails to turn a profit for at least three of the previous five years and is not run like a business.
Reporting, or not reporting, foreign bank accounts
It is important for taxpayers to inform the IRS of any foreign bank accounts they may have, as doing so can help the IRS decrease money laundering. If a taxpayer reports a foreign bank account, the IRS may check their return to track the origination of the assets in the account. Conversely, not informing the IRS of a foreign bank account can result in increased attention from the service.
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Earning too much or too little
The highest and lowest earning taxpayers in the U.S. are the ones who are audited most by the IRS. For the former, it is due to them having more money to recover and more complex tax returns, while the lowest-earning taxpayers tend to be audited more frequently than those in the middle due to their access to more tax credits.
Taxpayers should know that if they are requested for an audit, the IRS will inform them in the mail and will never start an audit by telephone. Some of the records the service may ask for when conducting their audit include receipts, bills, loan agreements, and medical records.