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Here’s why the IRS would want to audit your taxes


Jan. 10, 2023 Yahoo! Finance

If you get an IRS notice — official correspondence will only come through the mail — you should respond promptly with the requested documentation like bank statements or donation letters from charities.

Typically, if your taxes are under review, the IRS will first request more information by mail. For instance, more than three out of four of the agency’s tax reviews in 2021 were conducted by mail rather than in person.

You may also benefit from an audit. Over 17,000 of the 983,000 tax returns reviewed in 2021 resulted in additional refunds to Americans.

Here are the most common reasons the IRS may audit you.

Missing income

If you’re a gig worker or contractor and don’t include income from those jobs, the IRS will notice the missing income. In most cases, the agency gets copies of the 1099 forms from companies that you worked for. The IRS uses that information to compare with your return. If it doesn’t match up, that will trigger a review.

Too-high deductions

Certain deductions can be inflated, so the IRS keeps an eye on those. For example, it’s easier to overstate charitable donations because the agency doesn’t receive documentation on your contribution from the nonprofit.

But the IRS depends on statistical algorithms to determine if your deductions make sense based on your total income. If those deductions are too high, the agency may ask for documentation, such as a letter from the charity showing your contribution, to support your deduction.

Foreign accounts

You might need to report a foreign financial account — say, a bank account, brokerage, or mutual fund — when you file your federal taxes.

You must file Form 8938 if the total value of your foreign assets is more than $50,000) for single taxpayers or those married filing jointly) or $100,000 for joint filers on the last day of the tax year. You also must file if the total value of your foreign assets is more than $75,000 for single taxpayers or those married filing jointly) or $150,000 (for joint filers) at any point during the tax year, according to the IRS.

High earners

Those who make more than $1 million are more likely to get audited by the IRS.

For example, the IRS reviewed 0.2% of all individual tax returns for tax year 2019. That rate tripled to 0.6% for taxpayers reporting $1 million to under $5 million, 1.0% for taxpayers reporting $5 million to under $10 million, and 2.0% for taxpayers reporting $10 million and more in income.

Child dependent

Only one person can claim a child as a dependent, even if the parents don’t file taxes together. This can be even more complicated if another adult, such as a grandparent or older sibling, also helps support the child.

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