Tax Expert Reveals Simple Strategies to Avoid IRS Audits Each Year
A significant 24 percent of taxpayers express concern about facing an audit from the Internal Revenue Service, according to recent polling data from Morning Consult. The term "audit" evokes anxiety for many, yet certain taxpayers face higher risks than others. Fortunately, applying straightforward, practical tips can substantially lower the likelihood of an audit, as advised by a certified public accountant with extensive expertise.
Verify Your Identity with ID.me
Emily Shacklett, a senior wealth advisor at Hightower Signature Wealth in Dallas and a CPA with over two decades of experience, including at global accounting firm KPMG, emphasizes the importance of identity verification. She recommends signing up for a free ID.me account, an identity verification platform required to access your online IRS account.
Although the sign-up process involves multiple steps and can be complex, it offers significant benefits. Through their IRS account, taxpayers can review prior year's tax returns and, crucially, track income forms such as 1099s and W-2s that employers and companies have submitted to the IRS. This access is vital because many audits are triggered by "matching" errors, where the IRS notices discrepancies between reported income on a return and the forms it has received.
For freelancers and individuals with multiple income sources, remembering every payment can be overwhelming. By checking their IRS account, taxpayers can compare reported income against their tax return, adding a second layer of protection and reducing the chance of errors, especially as electronic tax forms become more common and easier to overlook.
Ensure Accuracy on Schedule C
Taxpayers using Schedule C, a form for reporting business income, are audited more frequently due to the subjective nature of some deductions. Unlike employer-reported income, the IRS cannot independently verify expenses like business mileage or home office square footage, which are common deductions on this form.
Some may view this subjectivity as an opportunity to overstate expenses, but Shacklett advises strict truthfulness. Overestimating expenses or omitting income can trigger an audit, leading the IRS to request documentation to substantiate the figures. Maintaining honesty and accuracy on Schedule C is essential to avoid scrutiny and potential penalties.
Handle Crypto Transactions with Care
Each tax season, the IRS focuses on specific areas, with digital currency and crypto transactions being a key concern this year. These transactions are often complex, increasing the risk of mistakes when filing tax returns.
Shacklett recommends that taxpayers involved in crypto keep meticulous records and consider working with a professional to ensure correct reporting. IRS audits typically involve requests for documentation, so having organized and readily available paperwork can prevent a stressful and prolonged process. Proper handling of crypto transactions is crucial to avoid errors that could draw audit attention.
By following these expert tips—verifying identity, ensuring accuracy, and carefully reporting crypto—taxpayers can proactively reduce their audit risk and navigate tax season with greater confidence.
