Are You Worried About Being Audited?

Now that you have filed your taxes for 2017, you may wonder what your risk is of an audit by the IRS. The good news is that audits have become less likely. The agency has trimmed back despite the growth in population, and the number of audits has dropped 40 percent since 2010.
Still, there are several factors the IRS considers red flags that increase the potential of an audit. However, chances are slim you will be chosen. In 2017, only eight in 1,000 returns were audited. And of those selected, most were correspondent audits, requiring tax payers only to mail in records to verify specific claims on their returns. Nevertheless, in-depth audits do occur. The most common reasons include:
• Making a lot of money or very little
• Being self employed
• High charitable contributions
• Failing to report all taxable income
• Excessive work-related deductions
• Having a home office
• Claiming rental losses
• Claiming 100 percent use of a vehicle for business
• Obvious lies about income
• Math errors on returns
• Excessive deductions for meals, travel and entertainment
Over the past few years, due to budget cuts, the IRS has shifted their strategy to focus on the highest income earners. Their idea is those who make the most money have the most to hide. Therefore, targeting the wealthy provides the IRS their best return on investment. In 2017, for instance, only five in 1,000 taxpayers with an adjusted gross income of $75,000 to $100,000 were audited, while 6.4 of 1,000 of those earning between $100,000 and $200,000 were scrutinized. The risk rose considerably for those earning more. For example, audits were conducted on 38 of 1,000 of those reporting an adjusted gross of $500,000 to $1,000,000, while over 190 of 1,000 of those reporting an adjusted gross of $10,000,000 or more were audited.
If you are concerned about being one of the chosen few, remember, honesty is the best policy and you should avoid all temptations to cheat.
Professional Tax Services is a locally-owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.scvprotaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.