For millions of Americans, tax season culminates in a single, happy moment: the arrival of a tax refund. It can feel like a windfall, a bonus from the government. However, the process of getting that refund is fraught with peril. The U.S. tax code is incredibly complex, and a simple, honest mistake on your return can be interpreted as a red flag by the Internal Revenue Service (IRS). The agency uses powerful computer algorithms to scan every return for anomalies. If your return deviates from the norm, it can be flagged for further review, or worse, a full-blown audit. Many common tax refund mistakes are the very things that land taxpayers in the IRS’s crosshairs.
Here are eight errors that can dramatically increase your chances of getting audited.
1. Claiming an Unusually Large Refund
The IRS has a vast amount of data on what a “normal” tax return looks like for someone in your income bracket and profession. If your refund is significantly larger than what the IRS models predict, it’s an automatic red flag. This doesn’t mean you won’t get your refund; it just means the IRS will likely take a closer look to understand why. This often happens when people claim unusually large charitable donations or work-related expenses compared to their income. Make sure you have meticulous documentation to back up every single deduction.
2. Making Simple Math Errors
This might seem basic, but it’s one of the most common triggers for an IRS notice. If you’re filing by paper, a simple arithmetic mistake—adding a number incorrectly or transposing two digits—can cause the final numbers on your return to be inconsistent. The IRS computers will catch this immediately. While this usually just results in a correction notice and a change to your refund amount, it guarantees that a human being at the IRS will be looking at your return, which can sometimes lead to them spotting other issues.
3. Failing to Report All Your Income
This is a cardinal sin in the eyes of the IRS. The agency receives copies of the same income-reporting forms that you do, including W-2s from employers and 1099s from freelance work, banks (for interest), and brokerage firms (for investments). Their automated system cross-references what you report with what they’ve received. If you forget to include the income from a small freelance gig or the interest from a savings account, the mismatch is an instant trigger for a letter and potentially an audit.
4. Taking Unusually High Deductions for a Home Office
The home office deduction is a valuable one for self-employed individuals, but it’s also one of the most abused, and the IRS knows it. To qualify, your home office must be used “regularly and exclusively” for your business. Claiming a deduction for a guest room that occasionally doubles as an office is a classic audit trigger. Furthermore, if the size of your home office or the amount of your related expenses seems disproportionately large for your stated business income, expect the IRS to ask for proof.
5. Claiming 100% Business Use of a Vehicle
If you use your personal vehicle for business, you can deduct the associated expenses. However, claiming that you used the car 100% for business, with zero personal miles, is a massive red flag. The IRS finds it highly improbable that a person would not use their vehicle for any personal errands, commuting, or trips. This claim suggests you are either not being truthful or not keeping the required detailed mileage logs, which makes your return a prime target for scrutiny.
6. Earning a Lot of Money and Claiming a Net Business Loss
If you have a high income from your primary job but also run a side business that consistently loses money, the IRS may become suspicious. They may suspect you are using a hobby, like photography or horse breeding, to generate paper losses that you then use to deduct against your other income. To be considered a business, you must be able to prove that you have a genuine profit motive. If your “business” loses money for more than three out of five consecutive years, the IRS is very likely to challenge its legitimacy.
7. Making Large, Non-Cash Charitable Donations
Donating cash to a charity is straightforward. But when you donate property, like a car, artwork, or a large amount of clothing, the valuation can be subjective. If you claim a deduction for non-cash contributions that is over $500, you must file Form 8283. If the deduction is very large, the IRS will want to see a qualified appraisal to justify the value you’ve claimed. Inflating the value of donated goods is one of the most common tax refund mistakes and a sure way to attract unwanted attention.
8. Claiming the Earned Income Tax Credit (EITC) Incorrectly
The EITC is a valuable tax credit for low- to moderate-income working individuals and families. It’s also one of the most complex credits, with confusing rules about qualifying children, marital status, and income levels. Because of this complexity, the error rate on returns claiming the EITC is very high. The IRS knows this and automatically scrutinizes these returns more carefully. An honest mistake in applying the tie-breaker rules for a qualifying child, for example, can easily trigger an audit.
Accuracy Is Your Best Defense Against an Audit
The key to staying off the IRS’s radar is to file a tax return that is accurate, well-documented, and reasonable. The goal is to get the refund you are legally entitled to, not to push the boundaries of the tax code. By avoiding these common tax refund mistakes, you can significantly reduce your chances of receiving that dreaded letter in the mail. Double-check your math, report all your income, and keep detailed records for every deduction you claim. An ounce of prevention is worth a pound of audit-related stress.
What’s the most confusing or frustrating part about filing your annual tax return?
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The post 8 Tax Refund Mistakes That Put You on the IRS Audit List appeared first on Budget and the Bees.
