The Internal Revenue Service (IRS) is up and running after the recent government shutdown. Although another government shutdown may be in the future, a recent publication by CNBC notes the temporary closure of the office is not likely to result in a decreased audit risk. This is because the agency has implemented various technological advances to review returns and flag discrepancies.
Some of the discrepancies that can result in a more thorough review include:
- Charitable contributions. A donation that appears too large when compared to your income is a red flag. However, it is important to note taxpayers may shift their charitable donation strategy due to recent tax reform. The new tax law increased the standard deduction. As such, taxpayers may lump together charitable donations in one year in order to make the most of this deduction. If you choose this strategy, be sure to save receipts and other documents to back up the claim.
- Income discrepancy. It is important to report all income. A failure to report income earned through a side job could result in scrutiny from the IRS. If you receive a 1099-MISC or other tax form, so did the IRS. They will be aware of the income reported on these forms so be sure to properly report it on your filings.
- Large income. Those who report over $1 million in annual income continue to be at an increased risk of an audit.
Taxpayers who cannot avoid these red flags are wise to keep paperwork to support their returns. If audited, it is wise to act to protect your interests. An attorney experienced in IRS tax audits can better ensure your interests are protected.