Simple tax mistakes can happen to anyone. For instance, you might inadvertently transpose some digits of your child’s Social Security number (SSN) on your tax return, and within 24 hours of filing, you get a notice from the Internal Revenue Service (IRS) that your tax return has been rejected.
There’s no need to panic in situations like that. Simple, innocent mistakes aren’t likely to trigger a tax audit. Typically, you’ll have the opportunity to correct your mistake so that your return can be processed.
Rather than mailing in a paper copy, e-filing your tax return, as more and more people are doing, is often a better option because gaffes are easier to fix electronically.
Educators should be especially careful on their returns because claiming educator‐related deductions that don’t follow the IRS’s narrow rules can trigger additional scrutiny. For example, if you claim expenses that are unusually high or aren’t backed by proper documentation—or that mix eligible classroom supplies with non‐qualifying personal expenses—your return may signal the IRS to take a closer look.
Why do people get audited?
Inadvertent or innocent mistakes aren’t viewed or treated the same way as tax-return information that could be a sign of potential tax fraud.
The IRS is on the lookout for information on returns that simply doesn’t add up. Tax audits can be random, or they could be initiated by auditors who want to take a closer look at the tax forms you’ve filed.
Information that’s out of the ordinary tends to catch the eye of an auditor. For example, the IRS might be comparing your returns to tax filers who are similar to you and looking for inconsistencies. Or, if your taxes intersect with another filer’s—if you’ve had business or investment transactions with someone else—the IRS may want to ensure that all your information squares up and no tax evasion is occurring.
A tax audit can be conducted by mail, online or by an IRS agent visiting you. However the audit occurs, the process takes up time you probably don’t have to spare, so it’s best to take a few simple precautions to ensure you’re filing accurate tax forms.
4 tax audit triggers to avoid
Here are four red flags you should watch out for on your tax returns to minimize the likelihood of triggering an IRS audit.
1. Your numbers don’t match up
An examination or audit may be triggered when reported income or deductions don’t match up with the documents the IRS has on file—your W-2s, 1098s, 1099s and so forth.
For instance, if you want to get a tax break on tuition expenses under the Lifetime Learning Credit (LLC), the tuition you put in your tax return to figure the credit should match the information on the Form 1098-T that the school sends directly to the IRS. If there’s a big discrepancy, or no 1098-T at all, then a request for more information may be triggered.
Most examinations for individuals are correspondence examinations in which you get an audit letter from the IRS. Be sure to read it, and don’t panic. It doesn’t mean you’re in trouble or that you’re going to jail. The tax examiners are simply looking for an explanation for the discrepancy. The most serious form of audit—a face-to-face audit—is reserved for people with higher incomes. The higher the income, the likelier the audit.
2. You include self-reported information
The most “auditable” information on the tax return is that which is self-reported, such as charitable donations and deductions.
The important thing is to keep very good records, experts say. You should make sure you have documents to back up everything you put in your tax return.
For example, if you simply estimate that you gave as much to charity this year as you did last year without adding up your receipts, that self-reported tax deduction could be removed, at least in part, upon examination.
3. Your records aren’t 100% accurate
Record-keeping is essential for outside income from part-time jobs and tutoring, and the best method of all is contemporaneous record-keeping. “Contemporaneous” means keeping records of your taxable income and expenses as you go along, rather than waiting until the end of the year and trying to reconstruct everything—or, worse, putting records together after you receive an IRS notice. Of course, you should keep receipts for everything.
If you have good records and backup documents, an examination can be fairly painless. You simply supply the information requested to the IRS, any necessary adjustments are made, and everybody is happy (or at least not miserable).
4. You fudge some numbers and hope no one notices
Occasional income from tutoring, whether paid in cash or by check, won’t be spotted by the IRS if you don’t report it. However, you must report all your income, regardless of how you are paid or which services you provide.
Common red flags for educators
Here are several common red flags for educators that could increase your audit risk.
- Exceeding the allowable expense limit. The IRS permits eligible K-12 educators to deduct up to $300 of unreimbursed expenses (or $600 for married educators filing jointly if both qualify). Claiming amounts that far exceed this limit without adequate backup or proper qualification (for example, if you haven’t met the “at least 900 hours” requirement or are not employed in a qualifying school) is an immediate red flag.
- Including nonqualifying or mixed purpose expenses. You are permitted to deduct only expenses for supplies used directly in the classroom and expenses that are required for enrollment in a qualified educational program. Expenses for items such as room and board, personal travel and certain nonessential entertainment or personal items are not eligible. If you combine or “bundle” expenses in a way that suggests you are deducting non-classroom (or personal) expenses as educator expenses, the IRS’s automated checks may flag your return.
- Duplicate or inconsistent expense reporting. If you receive reimbursement from your employer for some classroom supplies but then claim those same expenses on your return, or if your reported educator expenses are disproportionately high relative to typical teacher spending levels in your area, the inconsistency may prompt further review by the IRS.
- Poor or incomplete recordkeeping. Educators who claim a deduction must be able to produce receipts, invoices, canceled checks and other documentation supporting the claimed expenses. An absence of proper records or a failure to keep the documentation in line with IRS guidelines (as laid out in IRS Publication 970) and the limitations described in Publication 529 regarding miscellaneous deductions may lead to an audit.
- Misclassification of expenses. Thanks to the Tax Cuts and Jobs Act, many miscellaneous unreimbursed employee expenses are no longer deductible. If you mistakenly report educator expenses on the schedule for suspended miscellaneous itemized deductions rather than as an above‐the line adjustment available to eligible educators, that misclassification can serve as a red flag.
Tax prep tips for NEA members
Tax software can walk you through the different sections of your tax forms to help you fill them out accurately and completely. Review a comparison of tax software options, and check to see what kinds of deals you can find on tax-prep programs with the NEA Discount Marketplace. Look under the “Office Supplies” filter and click on “Finance & Tax Prep” to see what deals and cash-back offers are currently available for NEA members.
If your situation is more complicated, consider paying a professional tax preparer to handle your taxes.
