Audits do happen, but they are relatively rare. Some reports indicate that they have dropped by about 66% since 2010. Many people will never experience an audit at all.
However, even though it is rare, since it is a possibility, it is important to know what can trigger it. What makes the IRS decide to conduct an audit on someone’s tax return, and what red flags should you be aware of? Below are a few examples.
1. Unreported earnings
First and foremost, discrepancies between reported earnings can cause an audit to occur. If your employer reports that they paid you a certain amount of money, but you report that you earned far less, for example, the IRS is going to see that the numbers simply do not match up.
2. High annual income
Additionally, the IRS does sometimes focus more resources on those with a high level of income. These returns can often be more complex, perhaps with multiple sources of income, and it can be complicated to sort through all of the details and paperwork.
3. Numerous deductions
The IRS also looks at the things that you deducted from your taxes. Someone who has a high number of deductions may be more likely to be audited. The IRS simply wants to check to make sure that those deductions actually apply and should have been used to reduce the tax burden.
4. Typos and mathematical mistakes
Finally, the IRS is going to check your mathematical calculations, and discrepancies or typos may be flagged. This does not necessarily mean that you have done anything wrong, as it could just be a negligent mistake, but paperwork errors could trigger an audit.
If you do find yourself facing an audit, especially if it is the first time, it can help to work with an experienced attorney to explore your options.