The IRS collects tax returns from millions of American taxpayers each year. To efficiently determine which tax returns to audit, they use several sophisticated software tools. How the software calculates which tax returns to audit (by using IRS audit red flags) isn’t disclosed by the IRS, but most tax professionals understand which factors will most likely lead to a tax audit.

It’s important to note that red flags don’t necessarily lead to an audit.

How Much Income Can Go Unreported?

Navigating the complexities of tax laws and regulations can be a daunting task, but understanding the importance of reporting all income, regardless of the amount, is crucial for maintaining compliance with the IRS and ensuring peace of mind. At TaxRise, we understand that every dollar counts, and it’s our mission to provide you with the guidance and support you need to navigate your tax obligations confidently.

The IRS mandates that taxpayers report all sources of income, regardless of the amount or whether you received a formal document, such as a W-2 or 1099 form.

This requirement includes everything from your regular salary and wages to any additional earnings like tips, interest, dividends, and income from freelance work or business activities. Even seemingly minor amounts from side hustles or gig economy jobs must be accurately reported to avoid discrepancies in your tax filings.

It’s essential to understand that the IRS employs sophisticated data-matching technologies to cross-reference the information reported by employers, financial institutions, and other third parties with the details on your tax return.

This means that failing to report any amount of income can raise red flags, potentially leading to audits, penalties, and additional interest charges. The consequences of underreporting income can be significant, impacting not just your financial well-being but also your peace of mind.

What Will Happen If You Underreport Income On Your Tax Return? Is Underreporting Income A Crime?

As we discussed in this article, incorrectly filing your taxes isn’t a crime. You won’t be jailed for making an error in filling out paperwork.

The issue is when you purposefully provide false information on your tax return. Intentionally avoiding taxes violates federal law, which means the IRS can file a criminal suit against you.

When it comes to taxes, your intentions matter. If you accidentally underreport income, get your tax return amended as soon as possible.

If you end up owing back taxes, be sure to have a plan for that as soon as possible. We talk more about how to get tax relief below. When you owe money to the IRS, they will keep coming after you, not to mention the penalties and interest that add up quickly.

If you need assistance in paying off your tax debt, book our free tax consultation. We help taxpayers like you enroll in a tax relief program and defend you against the IRS, ensuring the most optimal resolution. Book your complimentary consultation today.

5 General IRS Audit Red Flags

Since the IRS doesn’t have the time to comb through each tax return and other documents, they use several advanced software and algorithms to detect anomalies.

In no particular order, here are some IRS audit red flags.

Keep in mind that red flags don’t mean you’ll automatically be audited — this will depend on a few factors. Also, these are only 5 popular IRS red flags. There are more red flags out there than these.

1. High Salary

If you make over $100,000, your odds of being audited increase dramatically. Though we’ve mentioned the common tax myth that low-income filers can’t be audited, in reality, they’re much less likely to be audited when compared to those with a high salary.

This is most likely because those in a higher tax bracket usually have more paperwork to file, which increases their risk of accumulating red flags.

2. Charitable Donations

The IRS is aware that many try to abuse this deduction, so if you donate a sizable amount, be prepared for the IRS to want proof.

If you donate more than average for someone of your income bracket, this may set off an alert on the system.

3. Incomplete Information

If there are many math errors and missing information, there’s a good chance the IRS software will pick up on it.

Not only does this signify an unfinished tax return, but it’s also suspicious.

4. Differences In Reports

The IRS accumulates information from third parties, such as your employer. If your tax return doesn’t match what your employer or other parties reported, this is a strong chance you’ll be audited.

Ensure you always double-check your math and documentation before submitting your tax return.

5. Job Expense Deductions

Just like charitable deductions, the IRS realizes that many taxpayers will try to write off expenses even though they’re an employee, not self-employed.

Though there are situations where it’s deductible, this deduction will most likely raise an IRS red flag.

How Does The IRS Catch Unreported Income?

We just went through the top IRS red flags for audits, but one important flag wasn’t included: unreported income.

If the IRS thinks you’ve underreported income, they will most likely audit you.

Underreported income is relatively easy to catch since income is reported from your employer and other institutions.

How To Avoid Being Audited By The IRS

To a certain extent, it’s possible to be audited by the IRS. Though using certain tax credits and tax advantages make you more likely to be audited, here are some tips on how to avoid being audited.

  • Ensure all math is correct: Math errors increase your chances of being audited.
  • Complete all documents: When you submit your return, make sure all documents are attached and have your signature.

What Happens If I Owe Back Taxes?

If you’ve amended your tax return and still owe money to the IRS, then you need to get it paid off as soon as possible. Though there’s no penalty on incorrectly filling out a tax return, there is a penalty and interest due on unpaid back taxes.

Fortunately, the Fresh Start Program can help.

This is a tax relief program offered by the IRS made up of several tax relief programs. If you’re interested in this program and want to see which program best suits your needs, book a free tax consultation today.

The Takeaway

If you’ve been audited or are behind on your tax return, check out TaxRise’s free tax consultation. From this 30-minute call, you’ll be able to determine if you qualify for our services and which tax relief program will work best for your unique situation.

We represent taxpayers who are audited by the IRS. We help advocate for the best relief outcome possible.

TaxRise has helped thousands of taxpayers just like you resolve their tax issues and erase their tax liability. Book your call and get started today!

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