Navigating IRS Audits in 2024: 5 Red Flags to Avoid

As tax season rolls around, businesses and individuals alike brace themselves for the meticulous scrutiny of the Internal Revenue Service (IRS). While an audit might seem like a distant worry, there are certain red flags that could significantly increase your chances of catching the IRS’s attention. Let’s delve into five of these potential triggers that might invite an IRS audit in 2024.

Inaccurate Income Reporting

Whether intentional or unintentional, misreporting income remains a primary concern for the IRS. Discrepancies between reported income and supporting documents, like W-2s or 1099s, could raise eyebrows and prompt further investigation.

Business Losses Across Multiple Years

 Consistent business losses over several consecutive years might appear suspicious to the IRS. While businesses do face downturns, chronic losses without a clear explanation or reasonable business justification could be seen as a red flag for audit.

Real Estate Losses

Real estate investments often involve complex tax implications. Reporting substantial losses in this domain might draw attention, especially if these losses are disproportionately large compared to income or if they seem disconnected from market trends.

Cryptocurrency Transactions

 The surge in cryptocurrency popularity hasn’t escaped the IRS’s radar. Any discrepancies or underreporting of crypto transactions could be flagged. The decentralized and often opaque nature of cryptocurrency dealings makes accurate reporting imperative to avoid audit triggers.

Refundable Credits for Business Owners (RC Credit)

 Claiming refundable credits, particularly the less common or extensively used ones, might prompt closer scrutiny. While eligible businesses can legitimately claim credits, exaggerated or unsupported claims could raise suspicions.

How to Avoid These Red Flags For IRS Audits in 2024

Navigating these red flags necessitates meticulous attention to detail and accurate reporting. Even innocent errors or omissions can inadvertently raise flags, leading to a potential audit. To mitigate these risks, consider these proactive measures:

Accurate Record-Keeping: Maintaining thorough and precise records of all financial transactions is crucial. Document income, expenses, investments, and deductions meticulously.

Seek Professional Guidance: Tax laws and regulations can be intricate. Consulting with a tax professional or accountant can ensure compliance and accurate reporting.

Transparent Documentation: Provide complete and transparent information in your tax filings. Ensure consistency between reported figures and supporting documents.

Stay Informed and Updated: Tax laws evolve, and staying abreast of these changes can help in accurate reporting and compliance, reducing the likelihood of triggering an audit.

While these red flags don’t guarantee an audit, being mindful of them can help individuals and businesses navigate tax season more confidently. By being proactive, meticulous, and seeking professional guidance, taxpayers can minimize their audit risk and ensure compliance with IRS regulations.

Final Notes

By keeping accurate records, double-checking your tax return, and accurately reporting all of your income, you can reduce your chances of being audited. If you are selected for an audit, it’s important to stay organized and well-prepared. If you are unsure of how to proceed, consider reaching out to a tax professional for assistance.

At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.Interested in learning more? Read on to learn how to respond to an IRS audit.