IRS Launches Broad Investigation Into Specific Tax Filing Practices—Are You Affected?

In the United States, April 15 was the last day to file tax returns for the fiscal year 2024. The Internal Revenue Service (IRS) has started to look over papers, especially ones that have mistakes, inconsistencies, or claims that don’t make sense. The due date has passed. As part of its normal enforcement actions, the IRS looks closely at tax returns that might show signs of theft or not following the rules.

Before giving out tax refunds, the IRS may start auditing people whose tax returns raise red flags, especially if they have questionable deductions or costs that are too high. It is very important that tax rules are followed and that the system stays fair for everyone that pays taxes.

Who is most likely to be audited by the IRS?

People who work for themselves or as freelancers are most likely to be reviewed. This group often lowers their taxable income by deducting business costs, especially with tax breaks like the “home office deduction.” The IRS may flag the return for further review, though, if the deductions claimed seem too high, odd, or not in line with the stated income.

One problem that often comes up is when taxpayers try to claim deductions for costs that aren’t necessary or usual in their field. These kinds of actions might raise red flags, which would make the IRS look into whether the claims are true or whether they are an abuse of the tax code.

How an audit is done by the IRS

When the IRS thinks there might be a problem, it starts an audit, which can be done in person or from afar. The taxpayer is officially told about the audit in a letter that spells out the type of audit being done and what records and documents need to be given.

It is very important for the taxpayer to answer this letter correctly and quickly. The IRS expects people who are being audited to show proof for every reduction they claim. If you don’t do this, the agency could make changes to your tax return, charge you fees, or even take further legal action in the worst cases.

If someone is being audited, the main goal is to make sure that all tax laws and rules have been followed and that the taxpayer’s reported income and deductions are true.

Which costs can be deducted, and which ones can’t?

People who are self-employed need to know what expenses can be deducted in order to avoid mistakes and reports. An expense has to be both ordinary (usual in the taxpayer’s trade or industry) and required (useful for the business) in order to be tax-deductible.

Common costs that can be deducted

• Materials and supplies are things that are used in the course of work, like tools, office supplies, and software.
• Office rent or workspace costs: This includes the cost of getting an office or keeping up a home office that is only used for work.
• Business travel includes costs like airfare, lodging, and transportation, as long as the trip is directly linked to business, like going to a meeting or conference.

Expenses that can’t be deducted

• Personal costs: You usually can’t deduct meals, activities, or purchases for your own use, even if they happen at work-related events.
• Purchases connected to hobbies: Things used for fun or hobbies that aren’t directly related to the business don’t count.
• Personal clothing: Everyday clothes are not tax-deductible, even if they are worn to work, unless they are a uniform or protective gear for the job.

To stay out of IRS trouble, know the rules.

To lower their chances of being audited, self-employed people need to stay up to date on IRS rules and make sure they are always followed when they file their taxes. If you don’t understand deductions or knowingly lie about them, you could delay your refund and even face fines. Taxpayers can avoid extra scrutiny and stay in line with federal tax rules by accurately reporting their income and only deducting legitimate business costs.

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