Are You At Risk Of An IRS Audit This Year?

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For millions of Americans that file their own taxes, their biggest secret fear is the dreaded a-word. But how likely is it at that you will be audited by the IRS this year, and what, if anything, can you do to reduce those chances?

The Targets

The IRS has a limited staff and a limited amount of time and resources committed to audits, so it must be selective about the targets it chooses.

High-income earners are the ones that should be paying the largest amount of taxes. Therefore, the IRS tends to focus on higher-income taxpayers when it comes time choose who get audited. Overall, less than 1.0% of filers were audited last year. Less than 0.55% of taxpayers that reported income ranging between $25,000 and $99,999 were audited. That percentage jumps to 16% among those that reported income of greater than $10 million.

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On the other end of the income range, 5.2% of filers that reported no adjusted gross income were audited as well. The safest place to be on the income scale is somewhere in the middle.

Audit Numbers Falling

The good news for taxpayers is that audit numbers have been falling across the board in recent years. The IRS’s budget has been cut by about 17% since 2010, so it should come as no surprise that the chances of being audited are also down about 23% during that time. The only class of filers that reportedly saw an uptick in audits last year were filers living overseas with overseas investments.

“We view offshore tax evasion as an issue of fundamental fairness,” former IRS commissioner Doug Shulman says. “Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack and foot the bill.”

How to get ready for tax season.

How To Avoid An Audit

There’s no sure-fire way to avoid an audit, but there are certain IRS red flags that are easy to avoid.

“Math errors are always at the top of the list,” says Cindy Hockenberry, manager of the Tax Knowledge Center of the National Association of Tax Professionals. Simple mistakes like addition and subtraction errors, incorrectly leaving a space blank or messing up your social security number can get your entire return flagged for a closer look.

In addition, if you itemize your deductions, make sure you know exactly what can and can’t be deducted. It’s also a good idea to always keep receipts and/or other proof of your deductions.

Why Audits Are Necessary

The budget cuts mean that the IRS will let more than $2 billion in unpaid and underpaid taxes slip through the cracks this year. U.S. tax revenue is critical in funding public schools and projects, keeping our military up and running and paying the salaries of countless government workers.
It may be hard for an honest taxpayer to understand why we all must live in fear of an intrusive financial grilling by the IRS. In reality, the IRS is not out to get the people that it audits. It only wants to make sure everyone pays their fair, legal share.

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By Quizzle. Helping You Make Better Financial Decisions.