Welcome to Extreme Investor Network, where we provide expert insights into personal finance to help you maximize your wealth. Today, we are diving into the recent developments with the IRS and how certain aspects of your tax return can trigger audits, regardless of your income level.
The IRS is currently working on plans to avoid increased audits on taxpayers making less than $400,000. However, experts warn that specific details on your tax return can still invite scrutiny from the IRS. According to the Treasury Inspector General for Tax Administration (TIGTA), the IRS has made limited progress in developing the methodology for its audit coverage calculation to comply with Treasury Department directives.
In August 2022, Congress approved $80 billion in IRS funding, with a portion earmarked for enforcement. The Treasury Department directed the IRS not to use the funds for increased audits on small businesses or households earning less than $400,000 annually. Despite this directive, the IRS has continued to focus its enforcement efforts on higher earners, large corporations, and complex partnerships, recovering $1.3 billion from high-income individuals.
Regardless of your income level, there are certain red flags that can trigger an IRS audit. Missing income is a common issue that can catch the IRS’s attention. Employers and financial institutions report earnings directly to the IRS using Forms W-2 or 1099, making it easy for the agency to identify incomplete filings.
Crypto investors are also on the IRS’s radar, with mandatory yearly reporting phased in starting in 2026 for cryptocurrency transactions starting in 2025. Taxpayers need to ensure they support every line item on their tax returns, as unreasonable deductions, such as excessive charitable contributions relative to income, can lead to scrutiny.
While IRS audits are still rare, it’s essential to maintain detailed paperwork to support your claims and deductions. Without proper proof during an audit, credits or deductions could be disallowed. Stay informed about the latest tax regulations and ensure your financial records are accurate and up-to-date to avoid any potential issues with the IRS.
At Extreme Investor Network, we are committed to helping you navigate the complex world of personal finance efficiently and effectively. Stay tuned for more expert advice on how to secure your financial future and make the most of your investments.