Audit Risk and Your Federal Income Tax Return

Audit Risk and Your Federal Income Tax Return
Zachary J. Montgomery JD, CPA, CFE
Written By: Zachary J. Montgomery, JD, CPA, CFE
Managing Member
Published On:

Filing a federal income tax return can be a daunting task. But, if you’re not careful, your audit risk could increase significantly. Let’s look at some of the factors that could put you at greater risk for an audit and how to reduce your chances of being audited by the IRS.

Schedule C, Reporting Large Deductions, Large Refunds, or NOLs

If you file a Schedule C (Profit or Loss from Business) as part of your Form 1040, it’s important to keep in mind that large deductions may attract the attention of the IRS. This includes any deductions that deviate from normal industry standards and practices. Additionally, reporting large refunds or net operating losses (“NOLs”) may also draw additional scrutiny from the IRS. If you’re concerned about this type of audit risk, consider keeping detailed records and speaking with a professional tax advisor who can help you calculate these amounts accurately.

Cash Transactions & Foreign Bank Accounts/Income

If you have foreign bank accounts or other financial assets abroad, it is imperative that you declare them on your taxes. The same goes for cash transactions over certain thresholds – these must also be reported to the IRS in order to avoid potential audits, penalties, and interest. Be sure to double-check all relevant forms and documents related to these types of transactions before submitting them to the IRS.

Mileage & Vehicle Expenses & Charitable Contributions

When filing your taxes, it’s important to accurately report any mileage and vehicle expenses for business purposes, as well as any charitable contributions made throughout the year. Misreporting either one of these items could lead to an audit down the line. To ensure accuracy in reporting such items, it is best practice to keep detailed records throughout the year, so that any discrepancies can be caught early on and corrected before filing your return with the IRS.

Amended Returns

It is not uncommon to need to amend tax returns after they have been filed with the IRS. However, doing so may trigger an audit due to additional scrutiny from the agency regarding why changes were made in the first place (particularly when there is a large reduction in tax due). If possible, always try and make sure any errors are corrected before filing your original return in order to minimize this type of audit risk.


When filing your federal income tax return, there are many factors that can increase your audit risk if not managed properly: reporting large deductions (e.g., mileage and vehicle expenses or charitable contributions) or NOLs on Schedule C, underreporting cash transactions, not reporting foreign bank accounts or income, and amending tax returns. By keeping accurate records throughout the year and speaking with a professional tax advisor, taxpayers can have confidence in submitting their federal income tax returns to the IRS.

Contact Provident Legal Counsel today to discuss your case and legal options. Schedule a Consultation or call (214) 432-6100.

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Zachary J. Montgomery JD, CPA, CFE
Written By: Zachary J. Montgomery, JD, CPA, CFE
Managing Member
Published On: 
July 5, 2023
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