Does your heart skip a beat every time you hear the term “IRS audit?”
Your dread of an IRS audit may affect how you are filing your federal income tax return. Well, the good news is that you are not the only one in this situation.
Studies revealed that most taxpayers claim that their fears and worries of being audited are among the key factors that motivate them to be honest during federal income tax filing. Most people also say that another factor is their personal integrity.
Of course, there are times when these fears are unfounded. You can still be honest on the tax return, file it diligently, and make timely tax payments, and still fear an IRS audit.
Good thing that your fears may be higher than your chances of getting audited by the IRS.
How Many People Undergo IRS Audits?
The IRS typically audits less than 1% of all the tax returns that are filed in a single fiscal year.
In 2017, for instance, the IRS was able to audit 0.9% of the corporate income tax returns exclusive of returns from S-corps or S corporations and 0.6% of all the individual tax returns during that year.
Even though 196 million tax returns were received by the IRS in the same year, it audited only 1 million the next year. Almost 75% of the audits were done through correspondence for the audits during the 2018 fiscal year. Approximately 25.2% of return audits took place on the field or that dreaded personal audit with an agent from IRS?
Who Gets Audited by the IRS?
Majority of high earners go through IRS audits. Those who report AGI or adjusted gross income of $10 million or higher made up 6.66% of audits in 2018 fiscal years. That very same year, taxpayers who reported $5 million to $10 million AGI made up 4.21% of the audits.
However, just because you are lower-income earner doesn’t completely eliminate the possibility of being audited. In 2018, 2.04% of the audits, the third biggest percentage of returns, involved those people who didn’t report any AGI at all.
What Factors Trigger IRS Audit?
There are several reasons why the IRS may choose your return for an audit. However, remember that being audited doesn’t mean that you have been dishonest or there is something wrong with your tax return.
Here are some of the common reasons why the IRS may audit your tax return:
- There is a questionable item on your tax return.
- There is computer scoring program that designates a score to several corporate and all individual tax returns once they are processed. If your tax return is chosen due to the high score under the scoring program, an inspection of your return may result to a change to your liability for income tax.
- Information coming from sources like individuals, newspapers, or public records indicates possible tax return inaccuracies or noncompliance with tax laws. The IRS checks the accuracy and reliability of these sources before they act on the details from them.
- Information on some third-party documents doesn’t match what was reported on your tax return.