How many deductions is too many?
If I put $27000 of my $40000 taxable income in my tax deductible accounts, and the standard deduction is $12,500 leaving $500 taxable income for the year, is that risky for tax audits in any way? I mostly live on my tax-free stipends as a traveling worker.
Answers
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Thank you for joining our community, Jillerino.
While it is impossible to totally predict or exclude a tax audit, I would like some more information on the $27,000 of tax deductible accounts. Are you referring to an SEP retirement option for self-employed individuals or other accounts?
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A good rule of thumb is to keep detailed records of anything. Then, if you do get audited, you have records supporting every amount and form you filed. We also offer the purchase of Audit Defense when you file with us, which would provide a team of experts from Protection Plus to defend you in the case of an audit.
Make sure you are also following all limits and regulations around those tax deductible accounts. For example, IRAs and HSAs have contribution limits, and overcontributing comes with large penalties and fees.
In general, follow all rules, keep records, and accurately report all tax information. The "risk" of an audit is hard to predict for your specific situation as we are not the IRS and can't predict when they decide to audit, but you can make yourself as prepared for an audit as possible to be safe. For more specific help with your situation, you can sign into your account and send us a message from the Support Center.
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$23000 in employer 401k, $4115 in HSA
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I'm unsure of what you mean by $23000 in employer 401k, $4115 in HSA, but if you feel as though those numbers might flag an audit, those are reported on the W-2, which is reported independently to the IRS by the employers,
Where there would be an issue is if your reported amounts contrary to those reported by the employer.
As a practical matter, it's prudent to match up your pay information throughout the year with your W-2s and ask your employer if something doesn't seem right. -
Thank you for this reply, Jillerino.
Withholding the max amount of 401k contributions is a known and accepted strategy by the IRS to reduce your gross income. The HSA contributions are also known and accepted as well. It is correct, that these values will be reported on the W-2 and combined with other income sources, you may not have to file a tax return. You can use this resource to confirm this possibility.
