What Triggers an IRS Audit?
Understanding what can trigger an IRS audit is essential for individuals and businesses filing income tax returns. Here are several key factors that may prompt the IRS to take a closer look at your financial records:
- High Income: Individuals with higher income levels are more likely to be audited. The IRS pays close attention to those earning above $200,000.
- Discrepancies: Significant discrepancies between reported income and third-party reports (such as 1099 forms) can raise red flags.
- Self-Employment: Self-employed individuals tend to face more audits. It's crucial to keep meticulous records and documentation.
- Claiming Unusual Deductions: If you claim unusually high deductions in relation to your income, it may trigger an audit.
- Cash-Intensive Businesses: Businesses that predominantly deal in cash are often scrutinized more closely due to the increased potential for tax evasion.
- Prior Audits: Past audits, even if resolved, can make you more susceptible to future scrutiny by the IRS.
To minimize the risk of an audit, it is advisable to maintain accurate records, report all income, and avoid aggressive tax strategies.