Your Odds of Being Audited

May 15, 2012

Being audited by the IRS is definitely a big fear
for many taxpayers. Having to dig up old records and receipts to provide backup
for deductions isn’t something any of us want to do. Yet, this fear rarely
becomes a reality for the vast majority of individuals.
According to the latest IRS Fiscal Year
Enforcement and Services Results, only slightly over one percent of individual
taxpayers making under $200,000 were audited in 2011. This percentage is down
from the previous fiscal year. Most of these audits are “correspondence” audits
handled via mail or a phone call. Less than one quarter of one percent of
audits of taxpayers making under $200,000 are actual field or “sit down”
audits.
Of course, these percentages go up as your income
increases. For those with income more than $200,000 but less than $1 million,
the percentage is just under four percent. And, if you’re fortunate to be
making more than one million annually, your chance of being audited climbs to
12.48%.
These numbers beg the question – can you actually
minimize your exposure of being audited? Well, the answer is yes and no. First,
most audited tax returns are chosen for review because either it’s part of a
targeted group or because a computer program randomly selects it. There are
also some red flags that may warrant a closer look by the IRS.
Here’s how you can help prevent an audit:
Check Your Math
The most common reason why taxpayers receive letters is because of basic addition
and subtraction mistakes. These typically don’t result in a full blown audit.
But, why chance it with a simple goof!
Don’t Overdo Deductions
Smallbusiness owners and the self-employed are sometimes targets due to large
numbers of deductions. Be prepared to substantiate whatever you claim on your
return.
Don’t Brag
Yes, the IRS is hip to social media. Don’t be tempted to brag on Facebook or Twitter
about pulling a fast one on the IRS. Not only are they trolling sites to find
unreported income and tax evaders, the IRS also rewards whistle blowers up to
15 to 30 percent of tax collected in such cases.
Get a Good Tax Preparer
Unfortunately, not all tax preparers are professional or qualified. Make sure you choose a reputable preparer
and understand everything that you’re signing. Remember, if there’s a mistake
and it’s caught, you’re the one who pays the bills, interest, and penalties!
If You Are Facing an Audit…
First, don’t panic. It’s important to remember that an audit is just the IRS’s way of
substantiating the numbers on your tax return. Most audits are simple and only
require showing backup paperwork. If you’re facing an audit, contact the team
at Wallace & Associates. We have deep experience and expertise in working
with taxpayers facing audits and can help guide you through the process.