Want to Avoid a Tax Audit by the IRS? Watch These Red Flags.
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Here's your money briefing for Friday, March 11th. I'm J.R. Whelan for The Wall Street Journal. The deadline to file your taxes is April 18th. No automatic extensions this year. And while you can't avoid paying your taxes, you can definitely take steps to prevent an audit by the IRS.
Well, there's a confluence of factors at work, including the pandemic-inspired federal grant, loan, and tax credit programs that makes this very, very complex tax filing season.
WSJ contributor Lori Ayanu has been taking a look at some of the common tax mistakes people make that raise red flags at the IRS. We'll talk with her about them after the break.
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It's tax season. That means grabbing your calculator, sorting through receipts, and looking for deductions. But it also means being sure to avoid any of the red flags that could trigger an audit by the IRS. WSJ contributor Lori Ayano has tips for taxpayers to stay on the IRS's good side. And she joins me now.
What tax filing deadline and context should taxpayers know for this season?
Hey, Lori, thanks for joining us.
It's a pleasure.
So, you know, Lori, just hearing the word audit can send chills through anybody who's getting their taxes together. How common is it for the IRS to audit individual taxpayers?
Well, the good news is that fewer than 1 million Americans get audited each year. But individuals who don't file their taxes or under-report their income are top of the list. And this year, the IRS is making a particular point of upping the ante and doing more auditing on consumers. The best thing you can do is file a return that is correct and complete.
Now, what makes this tax season particularly complex that could cause people to raise these red flags?
Well, there's a confluence of factors at work, including the pandemic-inspired federal grant, loan, and tax credit programs that makes this very, very complex tax filing season.
Yeah, let's talk about some of those complex situations. You mentioned the pandemic a moment ago. Healthcare is top of mind for a lot of people. And so are there any health-related tax issues that could lead to an audit?
Yes, many people last year qualified for tax credits to help them pay for their premiums on health insurance purchase through the government-run marketplaces. Now, the process can be very confusing, as you can imagine, and to make it even harder for people to understand, the eligibility requirements changed last year. Prior to 2021, people who had incomes of up to 400% of the federal poverty level qualified But that changed. For 2021 and 22, some people with incomes of more than that also get the credits, depending on the cost of the policy. So the biggest problems arise with this credit when taxpayers who apply for coverage in the marketplace underestimate their income to get lower premiums. Then when they file their taxes, they find out they have to pay a portion or the entire credit back to Uncle Sam.
So what are the red flags that the IRS is looking for? They're really looking to see if married couples who file separately, a category that receives a lot of attention from the IRS because of increased potential for mistakes and fraud.
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