​​How to Avoid IRS Auditing Penalties

1. File Accurate and Honest Returns

The most important way to avoid IRS penalties is to make sure your return is accurate and honest. This means reporting all of your income, not exaggerating deductions, and double-checking for typos or incorrect numbers. Whether you’re self-employed or receive a W-2, every source of income must be reported.

An experienced accountant can help ensure nothing is overlooked. At Cooper Norman, we use professional-grade tax software and cross-check each return for errors, which greatly reduces the chance of costly mistakes.

2. Keep Organized Records

The IRS can request documentation to support the numbers on your tax return. If you’re unable to provide that documentation, you could be penalized—even if the numbers were correct. Keeping receipts, mileage logs, bank statements, and invoices can go a long way in supporting your claims.

We recommend storing your tax documents in digital and physical formats for at least seven years. If you’re working with an accounting firm, ask them about their record-keeping policies and digital organization tools.

3. Report All Income (Even Side Hustles)

Side income from freelance work, gig apps, or online sales can easily be forgotten—but that doesn’t mean the IRS won’t notice. Many platforms send 1099 forms directly to the IRS, so even if you don’t receive a copy, the IRS still might.

Reporting this income accurately—and deducting any legitimate business expenses—is a specialty for most professional accountants. Don’t try to hide it. Transparency is key to avoiding audits and penalties.

4. Be Cautious with Deductions and Credits

It’s tempting to take every deduction and credit possible, but overstating business expenses, charitable donations, or home office deductions can trigger audits. This doesn’t mean you can’t claim them—just be sure they’re legitimate and well-documented.

Commonly scrutinized deductions include:

• Excessive business meals or travel
• High charitable contributions (especially cash)
• Large home office deductions without proof

A qualified accounting firm will ask the right questions to verify deductions and ensure they meet IRS guidelines.

5. Don’t File Late or Miss Payments

Missing the tax filing deadline can lead to automatic penalties, even if you don’t owe much or anything at all. The same applies to underpayment or late payment of taxes. Filing an extension is an option, but remember: an extension to file is not an extension to pay.

Hiring an accountant helps you stay on top of these deadlines. Many firms offer tax planning services that ensure you’re paying quarterly taxes correctly if you’re self-employed or have multiple income streams.

6. Understand Your Risk Profile

Certain behaviors are more likely to trigger audits, including:

• Earning more than $200,000 annually
• Claiming rental losses
• Running a cash-intensive business
• Having foreign accounts

If you fall into a higher-risk category, working with a seasoned accounting firm is even more important. Accountants can take proactive steps to reduce their audit risk, including reviewing their financials and advising on best practices before they file.

7. Respond Promptly to IRS Notices

If you do receive a letter from the IRS, don’t panic—but don’t ignore it either. The longer you wait, the more interest and penalties may accrue. Many IRS notices are simple requests for clarification or small adjustments. Others may require submitting supporting documents or paying a balance.

If you’re working with an accountant, forward the notice to them right away. A professional response can resolve the issue quickly and help you avoid further complications.

Partner With an Accounting Firm You Trust

Navigating tax season doesn’t have to be stressful. The best way to avoid IRS auditing penalties is by staying proactive, organized, and honest, and by working with a qualified accountant who understands the ins and outs of tax compliance.

Whether you’re a business owner, freelancer, or a salaried employee with multiple deductions, Cooper Norman is here to help you stay compliant, reduce your audit risk, and file with confidence.

Need help preparing your taxes or reviewing past returns? Contact our office today to schedule a consultation with one of our experienced Idaho Falls accountants.