Will Itemizing Deductions on Your Taxes Increase Your Risk of an Audit?

The IRS has been sorely underfunded for years. But that's changing for the better thanks to the Inflation Reduction Act of 2022, which allowed for $80 billion in additional IRS funding.

Part of that $80 billion is set to be earmarked to improve customer service at the IRS. But part of that money is also being allocated to ramp up tax enforcement -- meaning, making sure people are paying the taxes they're supposed to. 

Now at first, you might hear news like that and think, "Great, guess that means more IRS audits." But the IRS has already said that average earners shouldn't expect to see their audit rate increase, since it's high-income individuals and corporations who the agency is targeting as part of its enforcement initiative. 

Still, you may be nervous about getting an audit this year -- especially if you intend to itemize deductions on your tax return rather than claim the standard deduction. But in reality, itemizing deductions should not increase your audit risk if you're honest about the expenses you claim and stick to specific, accurate numbers.

Honesty and accuracy are key

Lying on your tax return is a good way to get yourself audited. So if you claim a $4,000 deduction that's totally bogus, then yes, you may find that the IRS wants to dig deeper into your tax return.

Similarly, let's say you decide to claim $1,000 in office supplies as a business expense for 2023. Chances are, you didn't spend exactly $1,000. That's just too perfect a number. So if you put something like that on your tax return, the IRS might conduct an audit to verify that figure.

But generally speaking, itemizing deductions shouldn't increase your audit risk if you're truthful and accurate, and if you have a means of backing up your claims. So let's say you invested in some business equipment and purchases in 2023 that totaled $4,322. If you have receipts for the items in question and that's the amount they add up to, there really shouldn't be a problem. 

And even if the IRS does decide to audit you, you have a way to prove you claimed the right deduction.

Be wary of disproportionate claims

In some cases, itemized deductions could increase your audit risk if the items you're claiming are large expenses relative to your income. But even then, if those deductions are legitimate, you should claim them. However, you may want to brace for some follow-up from the IRS where you're asked to offer further details.

Let's say you're a freelance IT professional who earned $40,000 in 2023, but you're claiming $18,500 in equipment and expenses. At first, the IRS might question your ability to spend almost half of your income on expenses (whereas claiming $18,500 on a $100,000 income may not raise such a big red flag). But if a tax professional confirms that those $18,500 in expenses are deductible, then you should go ahead and claim them as long as you have documentation. 

Similarly, perhaps you're claiming $12,000 in mortgage interest and are reporting $35,000 of income. The IRS might think something fishy is going on, since most people can't afford to spend about one-third of their income on mortgage interest alone. 

But maybe you're a generally higher earner who lost your job in 2023 and were paying your housing expenses out of your savings account that year alone. As long as you have a legitimate explanation, you should claim the tax breaks you're entitled to.

The idea of getting audited can be scary. But remember, most of the time, all you're doing is verifying information or providing the IRS with more of it.

That said, if you're going to itemize on your tax return, you may want to enlist the help of a professional to file it, rather than attempting it on your own with tax software. That way, they can make sure you're claiming the right deductions and help you work through an audit should that scenario arise.