How Often Does the IRS Audit? What You Need to Know. : Personal Finance : Money Times

Personal Finance Mar 19, 2024 01:54 PM EDT

How Often Does the IRS Audit? What You Need to Know.

How Often Does the IRS Audit? If you've ever found yourself breaking into a cold sweat at the mere mention of the word "audit," you're definitely not alone.

But before we dive into the nitty-gritty of IRS love letters (also known as audit notifications), let me share a little story.

A friend of mine, let's call him Dave, was as meticulous with his taxes as a cat with its grooming. Yet one fine spring day, he received the dreaded notice-an invitation to the IRS audit party. Turns out, Dave had accidentally claimed his living room couch as a dependent. Okay, I'm kidding about the couch, but he did make a minor error that flagged his return. It was an honest mistake, but it taught us all a valuable lesson: the IRS has its ways of picking out returns for a closer look.

So, how can you tell if you're about to receive your very own invite to this exclusive gathering? Let's break it down.

The IRS's Flare Gun: The Audit Notification

First things first, the IRS won't slide into your DMs or give you a buzz to chat about your tax return. They're old school - think letters through USPS mail. According to various sources, including the good folks at Taxpayer Advocate Service and The Tax Lawyer, if the IRS decides to audit your return, you'll receive a written notification. This letter will include details on why they chose your return and what they plan to examine more closely.

Pre-Audit Spidey Senses: Can You Feel It Coming?

While you can't predict an audit with 100% certainty, several red flags could increase your chances of getting selected. For instance, drastic changes in income, forgetting to report all your income sources, or claiming too many charitable donations without the paperwork to back them up are just a few triggers. Websites like Kiplinger and NerdWallet have compiled lists of common audit triggers that might as well be a treasure map for navigating around potential audit landmines.

Personal Anecdote: The Case of the Mysterious Side Hustle

Remember my friend Dave? Post-audit-party, he became the most audit-aware person on the planet. He once told me about his neighbor, who decided to turn his love for knitting into a small Etsy business. What he didn't realize was that the IRS is particularly interested in folks who work for themselves. The transition from hobbyist to entrepreneur is fantastic-but it comes with the added bonus of making your tax return more interesting to the IRS, especially if you start writing off expenses related to what was once just a hobby.

Avoiding the Audit Spotlight: A Few Quick Tips

Accuracy is Key: Triple-check your numbers and make sure every income source is reported. Even a simple mistake can wave a big red flag.
Documentation is Your Best Friend: Keep receipts, logs, and any other documentation organized. If you claim it, you must prove it.
Be Realistic with Deductions: We all love deductions, but claiming excessive or unusual deductions can make your return stick out.

Wrap-Up: Embrace the Audit?

While the thought of an IRS audit can be intimidating, remember that it's not the end of the world. Most audits are conducted by mail and can be resolved by providing the requested documentation. And hey, if you're ever selected, think of it as joining an exclusive club. After all, the IRS doesn't just audit anyone-welcome to the big leagues!

So, there you have it, folks. Keep these tips in mind, and maybe, just maybe, you'll steer clear of the IRS's radar. And if not, remember Dave's couch-er, I mean Dave's story-and know that you're not alone. Happy filing!