Strategies to Minimize IRS Audit Risks

A significant portion of taxpayers, approximately 24%, express anxiety about the possibility of being audited by the Internal Revenue Service (IRS), according to a poll conducted by Morning Consult. This concern has prompted experts to share strategies aimed at reducing the likelihood of an audit.

I’m a tax expert: Here’s my advice to avoid an IRS audit

Emily Shacklett, a CPA and senior wealth advisor at Hightower Signature Wealth, emphasizes several proactive measures taxpayers can take. One of her primary recommendations is to create a free ID.me account, which serves as an identity verification platform necessary for accessing an online IRS account. This account allows taxpayers to view their prior year’s tax returns and track income forms submitted by employers, which can help prevent "matching" errors—discrepancies between reported income and what the IRS has on file.

I’m a tax expert: Here’s my advice to avoid an IRS audit

Shacklett notes that individuals using Schedule C, a tax form for reporting business income, are more susceptible to audits due to the subjective nature of the deductions claimed. For instance, the IRS cannot independently verify expenses such as business mileage or home office usage, which can lead to potential overstatements.

I’m a tax expert: Here’s my advice to avoid an IRS audit

To further mitigate audit risks, Shacklett advises taxpayers to maintain accuracy in their filings. Overstating expenses or neglecting to report income can trigger audits, with the IRS likely to request documentation to substantiate any questionable figures.

I’m a tax expert: Here’s my advice to avoid an IRS audit

Additionally, the IRS has recently intensified its scrutiny on digital currency and cryptocurrency transactions. Given the complexity of these transactions, Shacklett recommends that taxpayers keep detailed records and consult professionals to ensure accurate reporting. Disorganized documentation can complicate the audit process, making it more stressful for the taxpayer.

I’m a tax expert: Here’s my advice to avoid an IRS audit

While Shacklett's advice is aimed at helping taxpayers navigate potential audit risks, some critics argue that the IRS's focus on subjective areas like Schedule C deductions can disproportionately affect small business owners and freelancers. They contend that the complexity of tax laws and the IRS's auditing practices may create an environment where honest mistakes are penalized.

I’m a tax expert: Here’s my advice to avoid an IRS audit

In light of these concerns, Shacklett emphasizes the importance of transparency and accuracy in tax reporting. She states, "Being truthful on the Schedule C is crucial. If a taxpayer overestimates their expenses or omits income, it could lead to an audit."

I’m a tax expert: Here’s my advice to avoid an IRS audit

• “The sign-up process is complicated and has a lot of hoops to jump through, but it’s really beneficial for taxpayers because it provides access to so much important information.” — Emily Shacklett, CPA

I’m a tax expert: Here’s my advice to avoid an IRS audit

• “IRS audits often come with a request for documentation, so if the supporting paperwork isn’t organized and ready, it could be a stressful and drawn-out process.” — Emily Shacklett, CPA

I’m a tax expert: Here’s my advice to avoid an IRS audit

By following these strategies and maintaining accurate records, taxpayers can better navigate the complexities of tax season and reduce their chances of facing an IRS audit.

I’m a tax expert: Here’s my advice to avoid an IRS audit