The IRS has been busy receiving your tax returns and preparing all documents for your tax credits. You need to make sure that you go by the rules and maintain honesty in your tax returns to avoid an IRS audit.
To-Do List on Avoiding IRS Red Flags
All taxpayers need to avoid red flags with the IRS. Make sure you are prepared for any random audits. Having millions of residents being processed, the IRS conducts a totally random audit of its taxpayers. Experts suggest that you follow steps to avoid receiving that dreaded notice from IRS.
Eric Bronnenkant, head of tax at Betterment expressed that there are a couple of major issues that can attract the IRS’ attention. One is that the overall audit rate is low and there is a higher inspection rate for low-income earners claiming the federal Earned Income Tax Credit.
The other one is when people don’t report all their income. An example of this is if someone forgets about their earnings in a side gig, says CBS News.
Earned Income Tax Credit Prone to IRS Audit
Many Americans are prone to IRS audits due to EITC. This concern affects some as they belong to groups with low income amounting to less than $25,000 annual earnings.
According to a recent analysis of IRS data by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University this group is 5 times more likely to be audited than everyone else. The data shows 13 out of 1000 tax returns filed by those earning less than $25,000 were audited compared to a 2.6 out of 1000 rate for those with above $25,000.
The main reason is that there is a higher rate of errors found with EITC. One analysis found that almost 50% of the returns claiming the tax credit had erroneously claimed too much or incorrectly claimed the credit.