Why Did My Taxes Get Audited?

If you have recently been notified by the IRS that you are being audited, then you may find yourself feeling stressed out and wondering why this is happening to you. After all, the odds of having your tax return chosen for audit by the federal government are extremely low. However, there are some red flags that the government looks for as they are reviewing tax returns that can dramatically increase the taxpayer’s chances of being chosen for an audit. Some of the most common red flags and reasons for auditing are described in detail in this article. Becoming aware of these reasons can help you to avoid making the same mistake in the future or, if you are reading this out of curiosity, can even help you to avoid being audited in the future.

Being Self-Employed

If you do not have a W2 job that requires you to have your taxes deducted from each paycheck, then there is a larger chance that you will be audited. This is because self-employed individuals do not have taxes deducted from their pay and thus must file to pay quarterly estimated tax payments. Since self-employed workers often work as contractors for various companies and individuals, there may not be an official record of their earnings. As a result, it is easier for self-employed workers to falsely report their income in an effort to pay less in taxes. As a result, the federal government tends to scrutinize these returns quite heavily.

Itemizing and Taking Many Deductions

Aside from being self-employed, itemizing and attempting to take a lot of tax deductions can be a red flag for the government and may lead to an audit. All taxpaying citizens are entitled to some basic deductions, but there are others that are meant for people in very specific situations. For example, college students may be eligible for a number of deductions that can greatly reduce their tax liability and even entitle them to a refund. Attempting to falsely claim these or heavily itemizing may be suspicious to the federal government and could lead to audit.

Being in a Higher Tax Bracket

In general, the government is less likely to audit somebody in one of the lower tax brackets than those in higher ones. This is because the amount of money one could be cheating the government out of is often much, much higher in the higher brackets. However, this does not mean that lying or cheating on a tax return will not lead to an audit for those in lower brackets.

This article was provided by Todd S. Unger, Esq., a tax attorney based in New Jersey that can help individuals and small businesses with all federal tax controversey issues including IRS tax audits.