A significant number of American taxpayers are worried about facing an audit from the Internal Revenue Service, with recent polling indicating that around a quarter harbour such concerns. As the April 15 tax filing deadline approaches, financial expert Emily Shacklett has highlighted three common errors that could increase the likelihood of an audit, offering practical advice to help individuals navigate the process more safely.
Secure Your Identity with ID.me
The first mistake to avoid is neglecting to sign up for a free ID.me account. This tool is crucial as it allows taxpayers to access their prior year's tax returns and monitor income forms that employers have submitted to the IRS. Shacklett emphasises that this step is vital in preventing matching errors, which often trigger audits. "Matching errors occur when the IRS notices discrepancies between the income forms filed on a return and those it has received," she explained. By using ID.me, taxpayers can ensure their records align accurately, reducing the risk of such issues.
Accuracy in Business Deductions
For those reporting business income on Schedule C, Shacklett warns against inaccuracies or overstatements in deductions and expenses. This area is particularly scrutinised by the IRS due to its subjective nature, making it a common trigger for audits. It is essential to be truthful and precise with your claims, as the IRS may request documentation to verify any questionable numbers. Overstating expenses can lead to heightened scrutiny, so maintaining clear and honest records is key to avoiding unnecessary complications.
Clarity on Crypto Transactions
Shacklett also advises taxpayers to be exceptionally clear when reporting digital currency and crypto transactions. "Each tax season, the IRS focuses on specific areas, and this year, crypto is a major priority," she noted. Given the complexity of these transactions, errors are common when entering information on tax returns. To mitigate this risk, she recommends keeping meticulous records and consulting with a professional who can assist in filing these transactions correctly. This proactive approach helps ensure compliance and reduces the chance of audit triggers related to crypto activities.
In summary, by avoiding these three mistakes—failing to use ID.me, inaccurately reporting Schedule C deductions, and mishandling crypto transactions—taxpayers can significantly lower their audit risk. Shacklett's insights provide a valuable guide for navigating the tax filing process with greater confidence and security ahead of the impending deadline.
