IRS Audit Risk Is Rising in 2025: Are You or Your Business a Target?
The IRS audit risk is a growing concern for many taxpayers, especially with the significant funding boost from the Inflation Reduction Act. The IRS is now enhancing its enforcement capabilities, and a key part of this strategy involves leveraging artificial intelligence to identify non-compliance. This means the audit risk for certain groups is expected to rise in 2025. Is your tax return on their radar? Here’s what you need to know.
Who Is on the IRS’s High-Risk List for 2025?
The IRS is focusing its enhanced enforcement on areas where it believes the tax gap is most significant. Key groups under increased scrutiny include:
- Individuals with Income Over $400,000: A primary focus is on high-income individuals and their complex financial structures.
- Self-Employed Individuals & Gig Economy Workers: Those who file a Schedule C are expected to receive increased attention from auditors.
- Filers with Unusually Large Deductions: Tax returns showing deductions that are disproportionately large compared to reported income are a common red flag.
- Taxpayers Claiming Multiple Refundable Credits: Claims for credits like the Earned Income Tax Credit (EITC) are subject to ongoing scrutiny due to historically higher error rates.
- Those with Crypto or Foreign Asset Transactions: The IRS is increasing its focus on digital assets and significant foreign holdings.
5 Key Steps to Mitigate Your Audit Risk
Being prepared is your best defense. Follow these best practices to “audit-proof” your finances:
- Ensure Accurate Reporting: Meticulously report all income and ensure the amounts on your return match third-party statements like W-2s and 1099s.
- Substantiate Everything: Claim only those deductions and credits for which you are legitimately eligible and can fully support with documentation.
- Maintain Organized Records: Keep complete records, including receipts, bank statements, and mileage logs, for a minimum of three years after filing.
- Double-Check Your Math: Use reputable tax preparation software or have a professional review your return to minimize calculation errors.
- File Electronically: E-filing generally results in fewer processing errors and faster return processing.
Conclusion: Don’t Wait for the Notice
While an audit notice is never welcome, understanding the risk factors and maintaining impeccable records can provide significant peace of mind. Don’t wait until you’re under scrutiny to get organized.
Strengthen Your Defenses
If you fall into one of these high-risk categories, a proactive review is a wise investment. Contact SW Accounting & Consulting Corp. today to ensure your tax strategy is sound and your records are audit-ready.
