The deadline to file tax returns for the 2024 fiscal year in the United States officially ended on April 15.
With this date now passed, the Internal Revenue Service (IRS) has begun reviewing filings—focusing particularly on those that contain inconsistencies, errors, or unusual claims.
As part of its standard enforcement procedures, the IRS scrutinizes returns that may signal potential fraud or noncompliance.
Before issuing any tax refunds, the IRS may initiate audits for certain individuals whose tax returns raise red flags – especially if questionable deductions or inflated expenses are present. These audits serve as a key tool in ensuring tax laws are followed and that the system remains fair to all taxpayers.
Who is most at risk of an IRS audit?
Among those most likely to be audited are self-employed professionals and freelancers. This group often deducts business-related expenses from their taxable income, particularly through benefits like the “home office deduction”.
However, if the deductions claimed seem excessive, unusual, or do not align with reported income levels, the IRS may flag the return for further investigation.
One common issue arises when taxpayers attempt to justify deductions for expenses that are neither necessary not standard within their industry. Such practices may trigger red flags, leading the IRS to investigate whether these claims are legitimate or represent an abuse of the tax code.
How the IRS conducts an audit
When the IRS detects a potential irregularity, it launches an audit, which may be conducted in person or remotely. The taxpayer is formally notified through an official letter that outlines the type of audit being conducted and specifies which documents and records need to be provided.
It is critical for the taxpayer to respond to this letter promptly and accurately. The IRS expects individuals under audit to provide documentation supporting each deduction claimed. Failing to do so may result in the agency making adjustments to the tax return, applying financial penalties, or in severe cases, pursuing further legal action.
The core objective of an audit is to ensure that the taxpayer’s reported income and deductions accurately reflect their financial reality and that all relevant tax laws and guidelines have been followed.
What expenses are deductible – and which are not?
For self-employed individuals, understanding what qualifies as a deductible expense is essential to avoiding errors and audits. To be considered deductible, an expense must be both ordinary (commonly accepted in the taxpayer’s trade or industry) and necessary (helpful and appropriate for the business).
Common deductible expenses
- Supplies and materials: Items such as tools, office supplies, or software that are directly used in the course of business.
- Office rent or workspace costs: This includes the cost of renting office space or maintaining a home office used exclusively for business.
- Business travel: Expenses such as airfare, lodging, and transportation, provided they are directly related to business activities like meetings or conferences.
Non-deductible expenses
- Personal costs: Meals, entertainment, or purchases for personal use – even if incurred during work-related events – are generally not deductible.
- Hobby-related purchases: Items used for hobbies or recreational activities not directly linked to the business do not qualify.
- Personal clothing: Everyday clothing, even if worn for work, is not deductible unless it is a uniform or specialized attire for the job (e.g., safety gear or branded uniforms).
Avoiding IRS trouble: know the rules
To minimize the risk of an audit, self-employed individuals must stay informed about IRS guidelines and apply them consistently when preparing their tax returns.
Misunderstanding or intentionally misrepresenting deductions can not only delay a refund but also result in penalties. By accurately reporting income and only deducting legitimate business expenses, taxpayers can avoid unnecessary scrutiny and maintain compliance with federal tax regulations.
