Don’t risk an audit. Here are four reasons the IRS may flag your return

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Tax season is underway and there’s been increased scrutiny of the IRS as the agency starts deploying part of the nearly $80 billion approved by Congress in August. 

While Treasury Secretary Janet Yellen has shared goals like boosting customer service and improving technology, critics have warned the new funding will spark an uptick in IRS audits

“People are scared to death of the IRS,” said Karla Dennis, an enrolled agent and founder of Karla Dennis and Associates. “They don’t understand how the system works, and so they’re extremely fearful of audits.” 

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The IRS audited 3.8 out of every 1,000 returns, or 0.38%, during the fiscal year 2022, down from 0.41% in 2021, according to a recent report from Syracuse University’s Transactional Records Access Clearinghouse.

While IRS audits have been rare, experts say certain moves are more likely to trigger an exam.

4 red flags for an IRS audit

Here's how to cope with higher rates

3. Refundable credits

The IRS also reviews refundable tax credits more carefully since filers can still receive the tax credit with zero balance due.

While audits have declined overall, the drop is lower for filers claiming the earned income tax credit, a tax break for low to moderate earners, which has contributed to higher audit rates among Black Americans.

4. Round numbers

Deductions with rounded expenses may raise eyebrows, explained Preeti Shah, a certified financial planner and CPA at Enlight Financial in Hamilton, New Jersey.

For example, if a business owner lists exactly $5,000 for advertising, $3,000 for legal expenses and $2,000 for support, “the IRS knows you’re just winging it,” she said.   

“Round numbers are a dead giveaway,” Apisa added.

How to protect yourself from a possible audit

Source: https://www.cnbc.com/2023/02/03/dont-risk-an-audit-here-are-four-reasons-the-irs-may-flag-your-return.html