What Causes You to Get Audited By the IRS? When to Worry About Government Tax Audits

Are you worried about getting audited by the IRS?

According to a recent statistic, the IRS audits about 1 out of every 220 taxpayers. A decade ago, your chances of being audited were about 1 in 90. Even though your chance of being audited by the IRS is less than one percent, the fear of being audited is something that’s at the forefront of many people’s minds.

While being audited isn’t nearly as scary as it sounds, many people find themselves wondering, “What causes you to get audited by the IRS?”

Check out this guide to learn what increases your chances of being audited by the IRS.

1. Mathematical Errors

One of the biggest reasons the IRS audits people is because of mathematical errors. While making a mathematical error on your taxes isn’t criminal, it can certainly cause the IRS to raise their eyebrows.

This is why it’s so important that you double and triple-check your numbers before filing. Whether your mistake was intentional or not, the IRS can still hit you with fines. If you struggle with math, we suggest hiring an accountant or using a tax preparation software tool.

2. Failing to Report Income

Failing to report income is another big no-no that can land you in hot water with the IRS.

Let’s say you work full-time as a hairstylist for a salon, and on the side, you do hair for weddings and proms that’s independent of the salon you work for. While it may be tempting to not report the money you’re making on the side, this is illegal.

You’ll need to report the income you make through your salon with a W2 form and also report the independent income you make with a 1099 form. 1099 forms are used for reporting income related to freelancing and some forms of investing.

While this is a non-traditional form of income, it’s still income, and the IRS needs to know about it.

3. Reporting Too Many Losses

Reporting too many losses can also give the IRS pause.

If you’re self-employed or you work as your own boss, you may find it tempting to hide some of your income by filing personal expenses as business expenses. But, the IRS is well aware of this trick, and reporting too many losses can cause suspicion.

4. Making Too Many Charitable Donation Claims

Claiming too many charitable donations can also land you in hot water with the IRS.

If you’ve made significant charitable contributions, you’re certainly entitled to some deductions. However, if you don’t have the proper documentation to prove your contribution, you can’t claim it.

And, don’t think you can get away with claiming you’ve made large contributions and then assuming the IRS won’t check your paper trail, because they will.

5. Incorrect Filing Status

Selecting the incorrect filing status can also cause you to get audited by the IRS. Sometimes, it can be difficult to figure out what your filing status actually is, especially if you’re married and your spouse is unemployed.

Luckily, a reputable tax professional can help you figure out your correct filing status. If you suddenly change your filing status, that can also sound the alarm for the IRS. For example, if you’ve recently gone through a divorce and you’re now filing as single or the head of the household instead of jointly.

While there’s nothing wrong with changing your filing status suddenly, the IRS may decide to look into you to see what’s going on.

6. Claiming Rental Losses

Claiming rental losses is another reason the IRS may decide to look into your tax situation further.

The passive loss rules usually prevent the deduction of income due to rental real estate losses. However, it’s important to keep in mind that there are a couple of exceptions to this rule.

First, if you’re an active participant in the renting of your property, you’re allowed to deduct $25,000 of losses against your income. However, this $25,000 starts to phase out as your adjusted gross income reaches $100,000. And, it disappears entirely once your adjusted gross income reaches $150,000.

The second exception to this rule applies to real estate professionals who spend over half of their yearly working hours and more than 750 hours each year actively participating in real estate as a broker, developer, landlord, or something of the like. In this case, you’re allowed to write off rental losses.

If you’ve recently experienced a large rental loss, the IRS is likely going to scrutinize it. This is especially the case when the losses are written off by taxpayers who claim to be real estate pros.

7. Claiming 100 Percent Business Use for Your Vehicle

Claiming that you’re using your vehicle 100 percent of the time to operate your business is another thing that can cause the IRS to raise their eyebrows.

When you depreciate a vehicle, you’re required to list it on Form 4562. On this form, you need to list how much you’ve used the vehicle in the past year by percentage.

If you claim you’ve used your vehicle for business 100 percent of the time, that means you’re saying you’ve literally never used the vehicle to run personal errands or drop your kids off at soccer practice. The IRS is going to have a tough time believing this, and they’re likely going to unleash their audit services on you.

What Causes You to Get Audited By the IRS?

Now that we’ve answered the question, “What causes you to get audited by the IRS?”, you’ll know what to look for the next time you’re filing your taxes. To make sure you don’t raise any suspicion, it’s best to work with a tax professional.

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