Are You in Danger of Being Audited by the IRS? – Professional Tax Services

The IRS will spend $80 billion dollars over the next ten years, which will result in hiring 87,000 auditors over that period. The intention of the Democrats who passed the Inflation Reduction Act was to reduce cheating on taxes and to provide better service to tax payers. However, the Biden administration has repeatedly said their target will be taxpayers who earn over $400,000 per year, and that the percent of those earning below that threshold will not be audited at a greater rate. However, some Republicans believe this will also lead to an increase in audits among middle-income Americans.
Danny Werfel, the IRS Commissioner, said the main target would be on the wealthy, large corporations and complex partnerships. He also reiterated Biden’s remarks that audit rates of those earning an average income or less will not increase.
The overall chance of being audited is about 0.4%, which is four out of 1,000. The highest earners audit rate, however, is about 1.1% and jumps to 8.7% for those earning over $10 million per year.
What Triggers the Biggest Risks of Being Audited?
• Under-reporting income. IRS computers will match your report with bank deposits, W-2s and 1099s.
• Being wealthy: The higher the income, the greater the chance of being audited. As more auditors are hired, the number of audits on millionaires could greatly increase.
• Claiming more deductions than the norm. The IRS uses statistical formulas to determine this.
• Claiming excessive deductions for food, entertainment or travel. It is important to keep good records to substantiate your claims.
• Claiming personal expenses as business expenses. For example, the IRS can determine if you are likely using your car for personal reasons.
• Having a sizable foreign bank account. The IRS wants to determine whether taxpayers are using these accounts to shelter assets from taxation.
• Claiming fallacious tax credits. The IRS examines tax credits with more scrutiny because they reduce tax liability on a dollar-for-dollar basis.
If you feel you are vulnerable to a possible audit or you have been contacted by the IRS and will be audited, we welcome you to contact us.
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.