Got Audited in the Past? 3 Ways to Avoid a Repeat

The recently signed Inflation Reduction Act included $80 billion in additional IRS funding. And while some of that money is supposed to be used to boost customer service and improve the filer experience, a big chunk of that money is supposed to be earmarked for tax compliance -- meaning, making sure people are really paying the IRS what they owe.

Because the IRS has been public about its plans to ramp up audits in light of that funding, many people are worried about their personal audit risk going up. Now, one thing you may take comfort in is that the IRS is largely looking to target high-wealth individuals and businesses that are more likely to be guilty of tax evasion than your average worker bringing home $45,000 a year. But still, the idea of getting audited may be worrisome -- especially if it's something you've had to deal with before.

The good news, though, is that a few simple moves on your part could help you avoid an audit this year. Here are some practices that might spare your return from further scrutiny,

1. Don't guess at your tax breaks

For many people, it makes sense to itemize deductions rather than claim the standard deduction. But if you're going to claim deductions individually, use exact numbers. Guessing at deductions or rounding up or down could put you at risk of an audit.

Let's say you're looking to write off the cost of a laptop you purchased for work purposes last year that cost you $1,012. You might remember running up about a $1,000 credit card tab. But don't just claim a $1,000 deduction on your taxes. That could raise a red flag, because even though you're actually claiming less than what you spent, not more, the IRS might look at that nice, round number and assume it's not accurate.

2. Report all of your income

You might think the IRS won't know that you earned $1,200 in freelance income last year from a given client. But if that client issues you a 1099 form documenting that income and you opt not to report it, you may be setting yourself up for an audit.

For each 1099 form that's issued to you, the IRS also gets a copy. So withholding that information isn't going to serve you well.

Incidentally, you're also required to report income related to interest earnings in the bank or dividend payments in a taxable brokerage account. Some of the 1099 forms summarizing these types of income may not arrive in the mail. You may need to log into your various accounts to access the forms you need.

3. Hire a tax professional

Working with a tax professional won't guarantee that your return won't get audited. But it might help.

A tax professional may spot red flags ahead of the IRS and work with you to adjust your return accordingly. A professional might also remind you to report certain income you may have forgotten about.

Even if you end up getting audited after using a professional, in that case, you'll usually have the benefit of that person's support in responding to whatever IRS inquiry arises. So even if you have every intention of being open and honest on your tax return, working with a professional could still be a wise move.

Most of the time, tax audits aren't all that complicated. Often, you simply receive a letter from the IRS in the mail and respond with documentation or more information. But still, getting audited can be stressful. And there may be a fair amount of back and forth with the IRS before an audit is resolved. So if you'd prefer to avoid an audit in 2024, be accurate, be honest, and seek help.