None of us like having to pay taxes, however, we do want clean streets, security officers, and pensions once we get old.
And even though many believe that after the cuts carried out by the DOGE in the staff of the Internal Revenue Service (IRS) nobody will request an audit from you, the reality is that your tax return is still reviewed microscopically and rigorously so that there is no kind of mistake or anyone trying to act smart.
You don’t need to be a millionaire or own a business, any error, no matter how small, can trigger alarms at the IRS and they might request an audit for you, and that might not have a very good outcome for you. So, we are going to tell you what the IRS reviews and how to avoid falling into their radar.
Does fewer IRS employees mean fewer audits?
In recent months, there has been a lot of talk about the massive staff cuts at the IRS carried out by the DOGE, led by Musk. And of course, many have thought that because there are fewer workers, there will also be fewer audits, but that’s not the case at all. There is no evidence that the workers currently operating at the IRS are going to carry out fewer audits. All tax returns, regardless of the taxpayer’s income, will be reviewed using the same methods, since the aim is to operate with transparency.
What is an audit and how does it work?
Audits are processes carried out by the IRS to verify that the data submitted when filing taxes is correct, well-documented, and above all, legal. Be careful, being audited doesn’t mean you’ve done something wrong, but it does mean they’re going to look at your information closely, so it’s better to do everything correctly from the start to avoid extra taxes or fines.
How does the IRS select a return for auditing?
The selection of tax returns is not random. The IRS follows three main methods:
- Review through the DIF system: every return goes through a computer analysis. The system assigns two scores: the DIF (Discriminant Function System) and the UIDIF (Unreported Income DIF). Returns with high scores are usually those with inconsistent or unbelievable data and are flagged for further review.
- Returns related to a taxpayer: when a return presents some inconsistencies, the IRS can decide to audit another related taxpayer to obtain more data. For example, if someone reports receiving a gift, the IRS may check the return of the person who gave it to see if it matches or if it was recorded as a business expense.
- Anonymous informants: the IRS can also act on reports, because any citizen can report suspicious activities, such as tax evasion or fraud. If the IRS considers it valid, they can audit that person or business. And the most curious part: informants receive a portion of the recovered money if the fraud is confirmed!!
What are the most common mistakes that trigger audits?
Forgetting to include extra income: such as tips, freelance jobs, or income from digital platforms. All of that can raise suspicions at the IRS because they cross-check data from employers and banks.
- Disproportionate deductions: if your deductions are too high for your income level, the system may flag your return as strange.
- Personal expenses disguised as business expenses: as you may know, self-employed individuals are a group that is constantly under surveillance. Many take advantage of expenses that appear personal but are declared as business-related (meals, clothing, travel…)
What to do if the IRS audits you?
Don’t panic, it doesn’t have to be bad. If your return is selected, the IRS will notify you officially. It is essential to:
- Keep all receipts and documentation.
- Answer honestly and transparently.
- Seek accounting advice if you consider it necessary to guide you correctly.
Don’t get carried away by rumours and file your return in the most honest way possible, review each declared item carefully and justify everything well. That way, you’ll avoid a scare or two!