For the vast majority of taxpayers, there is not much need to worry that you will be audited. In 2016, only 0.6 percent of individual income tax returns were audited, according to the IRS 2017 Data Book.
Why is this? For starters, the IRS budget has been cut, resulting in more than 2,200 fewer agents available to audit returns. However, the “real” audit rate is closer to 7 percent, as the IRS does not include the over 9.2 million notices that are questioning items on taxpayers’ returns, such as forgetting to include a 1099-MISC form. The IRS is relying more and more on technology to uncover underreporting and underpayment of taxes. Also, certain taxpayer groups are more susceptible to catching the attention of auditors.
If you’re in the middle of an audit or owe back taxes, contact us at www.craighansoncpa.com to schedule a free consultation with our tax preparation service in Jamestown, ND.
Returns that report more than $10 million in income or report no income
Sixteen percent of individuals who reported over $10 million in income were audited in 2014. Surprisingly, those returns that reported no income were audited at a higher rate than the average person. In 2014, 5.3 percent of tax returns with no income reported were audited. If your income is $25,000 to $200,000, you’re highly unlikely to be singled out for an audit.
Estate tax returns of more than $5 million
In 2014 the IRS did an audit on 8.5 percent of estate tax returns, which was well above the 0.9 percent of individual returns. Even among larger estate tax returns, 21 percent of those between $5 million and $10 million were audited, while 27 percent of those over $10 million were subjected to an audit.
Individual filing of international returns raises a red flag
The IRS is focusing more attention on international returns. Statements made by experts in the field strongly emphasized the practice of offshore tax evasion as being fundamentally unfair. Wealthy people evading the law by stashing their money overseas and not paying their share of taxes is forcing the bulk of lower income citizens to foot the bill to fund the government. In 2014, only 4.8 percent of international returns were audited.
Errors in information entered
Simple careless mistakes in filling out income tax forms are made that send up red flags to tax auditors. Filers neglect to get all report forms and statements together and forget to report dependents and exemptions correctly. The automated systems recognize these discrepancies, but can’t tell if they are actual mistakes or intentional. Neglecting to report all your income and other figures could result in an audit, especially at higher incomes. Those who contribute to more charities and other organizations open up the possibility for fraud.
Reports of itemized deductions that are unrealistic
If an individual or small business claims itemized deductions that are clearly out of line, they could be signaled out for an audit. Filers need to know what a legitimate deduction entails.
Carefully reading directions for completing forms and checking for accuracy and honesty will reduce your chances of an audit. Hiring a tax professional, specifically someone with tax resolution experience like Craig S. Hanson, CPA, can help you stay out of tax trouble.
If you need an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our tax preparation service in Jamestown, ND and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.