Don’t Let These Common Tax Filing Mistakes Put You on the IRS Radar in 2024
As tax season approaches, millions of Americans are preparing their returns with the hope of avoiding any unwanted attention from the Internal Revenue Service. While the IRS audits less than 1% of individual tax returns annually, certain mistakes can significantly increase your chances of being selected for examination. Understanding these red flags can help you file accurately and maintain peace of mind throughout the process.
The Most Common IRS Audit Triggers in 2024
Not reporting all of your income is one of the most common mistakes that may trigger an IRS audit. The IRS receives copies of W-2 and 1099 forms from employers, clients and financial institutions, and uses them to monitor tax returns for discrepancies. Missing income is easy for the IRS to catch because of information returns, and mismatched data is the number one thing that gets taxpayers into trouble.
Another significant red flag involves disproportionately large deductions compared to your income level. For example, if your adjusted gross income is around $100,000, but you’re claiming itemized deductions similar to million-dollar filers, that could raise eyebrows. A taxpayer with $100,000 of income taking a $70,000 charitable deduction would be considered a red flag.
Digital Asset Reporting Requirements
Cryptocurrency transactions have become a major focus for the IRS in 2024. Data collected by the IRS suggests that the noncompliance rate for reporting taxable income from trading digital assets such as cryptocurrencies and NFTs could be as high as 75 percent, which is why the IRS keeps a close eye on these transactions. The IRS has asked about virtual currency transactions on the front page of Form 1040 since 2020, with the 2024 Form 1040 specifically asking about receiving, selling, exchanging, or disposing of digital assets.
Business Expense and Home Office Deduction Pitfalls
Self-employed people are generally eligible for the home office deduction if they satisfy certain requirements, but regular employees working from home typically cannot write off home office costs. If you only have employee wages but also deducted home office expenses, the IRS will know something is amiss. One of the most common mistakes is claiming a multi-functional space as a home office, which can lead to trouble since the space must be dedicated to a singular purpose.
Mathematical Errors and Inconsistencies
Simple mathematical errors can cause discrepancies in your return and inadvertently flag your tax return for review. While round numbers might look neat, it’s not realistic, and the IRS knows that. Payments and expenses have varying amounts of both dollars and cents, so if you’re rounding off all your entries or estimating them, you’re making the sort of error the IRS is watching for.
Foreign Asset Reporting
The IRS is intensely interested in people with money stashed outside the U.S., especially in countries with the reputation of being tax havens. Failure to report a foreign bank account can lead to severe penalties. This means electronically filing FinCEN Report 114 (FBAR) by April 15, 2025, to report foreign accounts that combined total more than $10,000 at any time during 2024.
How Professional Tax Preparation Can Help
Given the complexity of modern tax laws and the numerous potential pitfalls, working with experienced professionals becomes increasingly valuable. For businesses and individuals in the Austin area, seeking qualified tax preparation services central east austin can provide the expertise needed to navigate these challenges successfully.
Professional tax preparation services are designed to meet the highest standards of accuracy and timeliness, guiding clients through complex tax codes while explaining implications and offering solutions. Expert preparers analyze current tax laws and regulations, identifying opportunities to optimize your tax position through proactive planning rather than reactive responses to tax issues.
Best Practices for Audit Prevention
To minimize your audit risk, wait until you receive all of your W-2 and 1099 forms before filing your tax return, as employers and other payers aren’t required to send these income statements until January 31. You need detailed substantiation for any deductions, because if you can’t prove you qualify for a tax break during an audit, you could lose the deduction.
When claiming any tax break, you need detailed paperwork to support every line item, as during an audit, a credit or deduction could be disallowed without proof. It pays to be extra careful when reporting your income and substantiating your expenses and other deductions. Working with a CPA or enrolled agent who knows the rules and record-keeping requirements is a good idea.
The Bottom Line
Despite areas of heightened scrutiny, IRS audits are still rare, with the IRS examining only 0.44% of individual returns for all returns filed between 2013 and 2021. However, by understanding these common red flags and maintaining accurate, well-documented records, you can significantly reduce your chances of unwanted IRS attention.
Remember that if you have the proper documentation for your deduction, loss or credit, don’t be afraid to claim it. You should never feel like you have to pay the IRS more tax than you actually owe. The key is ensuring accuracy, completeness, and proper documentation in all your tax filings. When in doubt, consulting with qualified tax professionals can provide the guidance and peace of mind you need to file confidently and compliantly.