The Tax Numbers That Could Increase Your Risk Of An IRS Audit

The second wave of "tax time" is just around the corner. Those who filed for extensions have until October 15 to submit their 1040, and that deadline brings with it another round of apprehension among consumers looking to avoid a run-in with the IRS. Naturally, intentionally lying on your taxes or making mistakes with the calculation both lead to increased risk of an audit, but there's a kind of middle ground that can also pose increased danger. Instead of taking the time to calculate your earnings and other income figures, some filers simply round. These complex additions can be things like interest from a savings account or proceeds from stock market trades (see: How to know when it's time to sell a stock). You may very well have dozens or even hundreds of individual elements to calculate, so rounding might feel like a natural and acceptable approach. This is also true for those utilizing an itemized deduction, since the volume of individual records can become overwhelming in a hurry.

Rounding is problematic, and the easiest way for the IRS to tell that you've fudged the numbers a bit is to end all your entries in "00." The same can be said for end numbers that repeat (regardless of what those two end numbers might be). The former indicates that you're probably playing a little fast and loose with your records, while the latter can raise red flags since repeating end digits are statistically uncommon in genuine financial data. Both can result in added scrutiny.

Another problem area that tax filers run into involves improper planning. Waiting until the last minute to file doesn't raise your audit risk on its own, but the rush to finish often leads to mistakes — and those errors are what can trigger extra scrutiny. The IRS has access to your exact figures, and if you fly through your filing, there's a much greater risk of doing the math wrong and submitting incorrect information. Instead of rushing to get it done, it's far more beneficial to apply for an extension (it's something you'll be granted automatically, provided you fill out the paperwork to apply). This extra time might be all that's required to get your accounts in order to apply the correct addition to your figures, avoiding guesswork or rounding problems altogether.

This problem area isn't confined just to hasty work, though. It's often just simpler to round figures and place estimates in boxes rather than actually going through all the calculations. This is especially true for anyone who files a paper version of their taxes. Paper filings will slow down your tax refund (the fastest method is always to e-file), and they can introduce all sorts of imperfections from legibility issues to a tendency to round and just 'make do.' However, accuracy is always important when submitting your annual taxes and can help you avoid extra stress and headaches.