Personal Finance

Here are some common IRS audit red flags for everyday taxpayers

Published

9 months ago

September 9, 2024

Photo By Rafa Elias | Moment | Getty Images

The IRS is still working on plans to avoid increased audits on taxpayers making less than $400,000 — but certain particulars of your tax return can invite scrutiny, regardless of income level, experts say.

The Treasury Inspector General for Tax Administration, or TIGTA, last week reported the IRS has made “limited progress” in developing the methodology for its audit coverage calculation to comply with a directive from the U.S. Department of the Treasury.

In August 2022, Congress approved $80 billion in IRS funding, including tens of billions earmarked for enforcement. The same month, the Treasury issued a directive to the IRS, saying the funds couldn’t be used for increased audits on small businesses or households earning less than $400,000 annually.

In response, the IRS agreed to TIGTA’s recommendations and plans to document the development of its audit methodology, the report said.

Meanwhile, the IRS has continued to focus enforcement efforts on higher earners, large corporations and complex partnerships. The Treasury Department on Friday announced $1.3 billion has been recovered from “high-income, high-wealth individuals.”

“It’s not right that everyday Americans pay taxes while struggling to make ends meet, but some of the wealthiest in this country have been able to evade payment,” Treasury Secretary Janet Yellen said Friday at an event in Austin, Texas.

Regardless of your income, here are some red flags for IRS audits, according to tax experts.

It’s easy for IRS to catch missing income

While IRS enforcement is focused on wealthy Americans, everyday taxpayers could still face an audit if they haven’t filed an accurate return, experts say.

One common red flag is missing income. Employers and financial institutions use so-called information returns, such as Forms W-2 or 1099, to report your earnings directly to the IRS. Once the agency has information returns, it can easily flag incomplete filings.

“That has a significant return on investment” for the IRS, according to Eric Hylton, national director of compliance for Alliantgroup and former IRS commissioner for the agency’s small business and self-employed division.

Crypto investors could see enforcement

Crypto investors will also be subject to income reported via information returns.

The IRS finalized cryptocurrency tax guidance in July, which included guidelines for digital asset brokers. Mandatory yearly reporting will phase in starting in 2026, covering activity from 2025.

“Everybody’s been waiting for the tidal wave of this enforcement activity,” James Creech, an attorney and senior manager at accounting firm Baker Tilly, previously told CNBC.

Taxpayers need ‘to support every line item’

Another common audit trigger is unreasonable deductions, said Hylton with Alliantgroup.

For example, if you’re making $75,000 per year and claim $15,000 or $20,000 in charitable deductions, that could invite IRS scrutiny, he said.

IRS Commissioner Danny Werfel on taxing the wealthy, restoring fairness and utilizing AI

When claiming a tax break, you need detailed paperwork “to support every line item,” said Hylton said. During an audit, a credit or deduction could be disallowed without proof.

Despite areas of heightened scrutiny, IRS audits are still rare.

For all returns filed between 2013 and 2021, the IRS examined 0.44% of individual returns and 0.74% of corporate returns as of the end of fiscal 2023, according to its latest Databook.

Personal Finance

Job market is ‘trash’ right now, career coach says — here’s why

Published

1 hour ago

June 9, 2025

Business Finance News

Nitat Termmee | Moment | Getty Images

The U.S. job market isn’t looking too hot for recent college graduates and other job seekers, according to economists and labor experts.

“The job market is kind of trash right now,” said Mandi Woodruff-Santos, a career coach and personal finance expert.

“I mean, it’s really difficult,” she added. “It’s really difficult for people who have many years of experience, so it’s going to be difficult for college kids.”

‘Tough summer’ for job seekers

That may seem counterintuitive.

The national unemployment rate in May was relatively low, at 4.2%. The layoff rate has also been historically low, suggesting employers are holding on to their workers.

Yet, hiring has been anemic. The pace of employer hiring in April was the lowest in more than 10 years, since August 2014, excluding the early months of the Covid pandemic.

The rate at which workers are quitting — a barometer of worker confidence about their job prospects — has also plummeted to below pre-pandemic levels, a stark reversal from the “great resignation” in 2021 and 2022.

“It will be a tough summer for anyone looking for full-time work,” Heather Long, chief economist at Navy Federal Credit Union, wrote in an e-mail Friday.

“This is an ‘abundance of caution economy’ where businesses are only filling critical positions and job seekers, especially recent graduates, are struggling to find employment,” she said.

Steady job market erosion ‘cannot continue forever’

While the job market may be limping along by some measures, Long also said a recession doesn’t seem “imminent.”

Businesses added more jobs than expected in May, for example. But those gains have slowed significantly — a worrisome sign, economists said.

Employers appear reluctant to hire in an uncertain economy.

Economy is cooling but not rolling over, says Morgan Stanley's Michael Gapen

CEO confidence plummeted in the second quarter of 2025, seeing its largest quarterly decline on record dating to 1976, according to a survey by The Conference Board. Uncertainty around geopolitical instability, trade and tariff policy were the largest business risks, according to Roger Ferguson Jr., the group’s chair emeritus.

The share of CEOs expecting to expand their workforce fell slightly, to 28% in Q2 from 32% in Q1, and the share planning to cut their workforce rose 1 point, to 28%.

“The steady erosion in the US job market cannot continue forever — at some point, there will just not be much left to give,” Cory Stahle, an economist at the Indeed Hiring Lab, wrote in an analysis Friday.

“In a low-hiring, slow-growth environment, employers can only hold onto their existing employees for so long before they too will have to be let go — increasing unemployment even as job opportunities continue to shrink,” Stahle wrote.

Don’t underestimate personal connections

Don’t underestimate the “power of personal connections” to help get noticed in a competitive job market like this one, said Woodruff-Santos, the career coach.

Her No. 1 piece of advice: Make yourself “uncomfortable” in order to network and build professional relationships.

“You need to put yourself in situations where you may not know everybody, you may not know one person, where you may actually need someone to give you a bit of a helping hand, and to feel confident and OK doing that,” Woodruff-Santos said.

If you’re pushed to accept a job you don’t love to make ends meet, make a plan to keep current in the field to which you aspire, she said.

In other words, build the skills that will eventually help you get that job, perhaps by taking a training course, getting a certificate or doing contract work, she said. Also, consider joining a professional organization, putting yourself in the same room as people in your desired field and with whom you can connect, she said.

These steps raise your chances of getting attention from future employers and keeping your skills sharp, Woodruff-Santos said.

She also had some words of encouragement.

“The job market has been trash before,” she said. “It’ll be trash again. This probably won’t be your first trash job market. And you’re going to be OK.”

Personal Finance

What Pell Grant changes in Trump budget, House tax bill mean for students

Published

1 day ago

June 8, 2025

Business Finance News

Carol Yepes | Moment | Getty Images

For many students and their families, federal student aid is key for college access.

And yet, the Trump administration’s budget proposal for fiscal year 2026 calls for significant cuts to higher education funding, including reducing the maximum federal Pell Grant award to $5,710 a year from $7,395, as well as scaling back the federal work-study program. The proposed cuts would help pay for the landmark tax and spending bill Republicans in the U.S. Congress hope to enact.

Roughly 40% of undergraduate students rely on Pell Grants, a type of federal aid available to low-income families who demonstrate financial need on the Free Application for Federal Student Aid. Work study funds, which are earned through part-time jobs, often help cover additional education expenses.

President Donald Trump‘s “skinny” budget request said changes to the Pell Grant program were necessary due to a looming shortfall, but top-ranking Democrats and college advocates say cuts could have been made elsewhere and students will pay the price.

“The money we invest in post-high school education isn’t charity — it helps Americans get good jobs, start businesses, and contribute to our economy,” Sen. Elizabeth Warren, D-Mass., told CNBC. “No kid’s education should be defunded to pay for giant tax giveaways for billionaires.”

Pell Grants are ‘the foundation for financial support’

Nearly 75% of all undergraduates receive some type of financial aid, according to the National Center for Education Statistics.

“Historically the Pell Grant was viewed as the foundation for financial support for low-income students,” said Lesley Turner, an associate professor at the University of Chicago Harris School of Public Policy and a research fellow of the National Bureau of Economic Research. “It’s the first dollar, regardless of other types of aid you have access to.”

Under Trump’s proposal, the maximum Pell Grant for the 2026-2027 academic year would be at its lowest level in more than a decade.

“The Pell reduction would impact the lowest-income families,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

More than 92% of Pell Grant recipients in 2019-2020 came from families with household incomes below $60,000, according to higher education expert Mark Kantrowitz.

How Pell Grant cuts could affect college students

If the president’s cuts were enacted and then persisted for four years, the average student debt at graduation will be about $6,500 higher among those with a bachelor’s degree who received Pell Grants, according to Kantrowitz’s own calculations.

“If adopted, [the proposed cuts] would require millions of enrolled students to drop out or take on more debt to complete their degrees — likely denying countless prospective low- and moderate-income students the opportunity to go to college altogether,” Sameer Gadkaree, president and CEO of The Institute for College Access & Success, said in a statement.

Already, those grants have not kept up with the rising cost of a four-year degree. Tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier. At four-year, in-state public colleges, the average was $24,920, up from $24,080, according to the College Board.

The Pell program functions like other entitlement programs, such as Social Security or Medicare, where every eligible student is entitled to receive a Pell award.

However, unlike those other programs, the Pell program does not rely solely on mandatory funding that is set in the federal budget. Rather, it is also dependent on some discretionary funding, which is appropriated by Congress.

The Congressional Budget Office projected a shortfall this year in part because more students now qualify for a Pell Grant due to changes to the financial aid application, and, as a result, more students are enrolling in college.

Cutting the Pell Grant is ‘extreme’

Although there have been other times when the Pell program operated with a deficit, slashing the award amount is an “extreme” measure, according to Kantrowitz.

“Every past shortfall has been followed by Congress providing additional funding,” he said. “Even the current House budget reconciliation bill proposes additional funding to eliminate the shortfall.”

However, the bill also reduces eligibility for the grants by raising the number of credits students need to take per semester to qualify for the aid. There’s a concern those more stringent requirements will harm students who need to work while they’re in school and those who are parents balancing classes and child care.

“These are students that could use it the most,” said the University of Chicago’s Turner.

“Single parents, for example, that have to work to cover the bills won’t be able to take on additional credits,” Mayotte said.

“If their Pell is also reduced, they may have to withdraw from school rather than complete their degree,” Mayotte said.

Personal Finance

What a ‘revenge tax’ in Trump’s spending bill means for investors

Published

1 day ago

June 8, 2025

Business Finance News

WASHINGTON DC, UNITED STATES – MAY 30: United States President Donald Trump departs at the White House to U.S. Steel’s Irvin Works in West Mifflin, Pennsylvania in Washington D.C May 30, 2025.

Celal Gunes | Anadolu | Getty Images

As the Senate weighs President Donald Trump‘s multi-trillion-dollar spending package, a lesser-known provision tucked into the House-approved bill has pushback from Wall Street.

The House measure, known as Section 899, would allow the U.S. to add a new tax of up to 20% on foreigners with U.S. investments, including multinational companies operating in the U.S.

Some analysts call the provision a “revenge tax” due to its wording. It would apply to foreign entities if their home country imposes “unfair foreign taxes” against U.S. companies, according to the bill.

“Wall Street investors are shocked by [Section] 899 and apparently did not see it coming,” James Lucier, Capital Alpha Partners managing director, wrote in a June 5 analysis.

If enacted as written, the provision could have “significant implications for the asset management industry,” including cross-border income earned by hedge funds, private equity funds and other entities, Ernst & Young wrote on June 2.

Passive investment income could be subject to a higher U.S. withholding tax, as high as 50% in some cases, the company noted. Some analysts worry that could impact future investment.

The Investment Company Institute, which represents the asset management industry serving individual investors, warned in a May 30 statement that the provision is “written in a manner that could limit foreign investment to the U.S.”

But with details pending as the Senate assesses the bill, many experts are still weighing the potential impact — including who could be affected.

Here’s what investors need to know about Section 899.

How the ‘revenge tax’ could work

As drafted, Section 899 would allow the U.S. to hike existing levies for countries with “unfair foreign taxes” by 5% per year, capped at 20%.

Several kinds of tax fall under “unfair foreign taxes,” according to the provision. Those include the undertaxed profits rule, which is associated with part of the global minimum tax negotiated by the Biden administration. The term would also apply to digital services taxes and diverted profits taxes, along with new levies that could arise, according to the bill.

The second part of the measure would expand the so-called base erosion and anti-abuse tax, or BEAT, which aims to prevent corporations from shifting profits abroad to avoid taxes.

“Basically, all businesses that are operating in the U.S. from a foreign headquarters will face that,” said Daniel Bunn, president and CEO of the Tax Foundation. “It’s pretty expansive.”

The retaliatory measures would apply to most wealthy countries from which the U.S. receives direct foreign investment, which could threaten or harm the U.S. economy, according to Bunn’s analysis.

Notably, the proposed taxes don’t apply to U.S. Treasuries or portfolio interest, according to the bill.

‘Strong priority’ for House Republicans

Section 899 still needs Senate approval, and it’s unclear how the provision could change amid alarm from Wall Street.

But the measure has “strong support” from others in the business community, and it’s a “strong priority” for Republican House Ways and Means Committee members, Capital Alpha Partners’ Lucier wrote.