07 May IRS Audit – Would you survive?
If you make under $200,000 a year, your chances of getting audited by the IRS are just above 1%. Some people like those odds and take a chance by screwing around on their annual tax returns. Does this mean you can get away with cheating on your taxes? Absolutely not. The IRS uses sophisticated computer algorithms to decide on which returns to audit. If your return looks strange, your chances of being audited go way up.
- returns with extremely large deductions in relation to income are more likely to be audited.
- certain types of deductions have long been thought to be hot buttons for the IRS—especially auto, travel, and entertainment expenses. The Earned Income Credit is also a hot item
- businesses that show losses are more likely to be audited, especially if the losses are recurring. The IRS may suspect that you must be making more money than you are reporting—otherwise, why would you stay in business?
- deductions that seem odd or out of character could increase your audit chances—for example, a contractor that travels the world and deducts the cost as business deductions.
The key to surviving an IRS audit is to not get selected in the first place. Make sure you have a good CPA that knows what they’re doing and will represent you during an audit. Keep good records of any deductions on your tax return. And most importantly, before you accept the tax return and sign the form, make sure you understand what the tax preparer entered; you are responsible for what’s on your tax return.