The Internal Revenue Service is one of the most feared agencies in the United States Government. Its function pertains to the taxation laws and collection of taxes from the U.S. citizens. You, as a citizen are always likely to be selected by the IRS for an audit. However, the chances of that are very low. Among the likely reasons for getting an IRS audit, your annual income is the most important.
- People who earn less than $200,000 are less than 1% likely to be tagged for an audit.
- Those who earn $200,000 – $1,000,000 are 3% likely to be tagged for an audit.
- Those who earn more than $1,000,000 are 6% likely to be tagged for an audit.
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We have compiled a list of 12 most likely reasons that are likely to attract the attention of the IRS for an audit;
Reason number 1:
When you are filing for the tax returns by yourself, it is important to check the math repeatedly. When the income tax details are entered into the IRS computers, any calculation errors are automatically detected. This may seem a simple issue, but it such a simple mistake can come back to haunt you.
Reason number 2:
Do not forget to report every single source of your income. Concealment issues, whether intentional or otherwise are taken very seriously by the IRS. Your income taxes can be cross checked with the tax records of your clients, business partners, vendors, and employees. Income concealment is one of the most popular audit baits.
Reason number 3:
Be careful of referrals from the third parties. You can be tagged for an audit because of being referred by another government organization, or an independent informer.
Reason number 4:
The means of your earning carries a certain potential for attracting attention of the IRS. The professions where money goes unreported and changes hands too quickly, like a bar, attract more attention. On the other hand, a car salesman will attract less attention.
Reason number 5:
The very high earners are always likely to attract greater attention. The main reason behind it is that the high earners have a higher chance of earning through illegitimate activity.
Reason number 6:
Sole business owners are more likely to attract attention for an audit. Their income and numbers are checked twice so nothing goes missing. Due to lack of accountability in a sole ownership, unlawful incomes might get recorded under their business name.
Reason number 7:
It is true that you can tax breaks by giving to charity. However, large enough donations attract that much more attention from the IRS for an audit. The IRS feels the need to ensure there is nothing nefarious going on behind the acts of charity.
Reason number 8:
A claim for rental loss attracts immediate attention from the IRS. They feel the need to verify is your loss is legitimate, or is just another scheme of avoiding taxes.
Reason number 9:
You need competent, professional, and ethical tax preparation experts for yourself and your business. They must ensure there is no false statement or claim in your returns. This will offset the risk of an audit by a great margin.
Reason number 10:
Do not forget to report foreign bank accounts, if you have any. Unreported accounts can always be used to hoard unreported income.
Reason number 11:
The more transactions of money, the greater the chances of an audit. Frequent transactions of significant enough amounts allude towards a handsome amount of income. The IRS feels the need to ensure your source of income is legitimate.
Reason number 12:
Ignore the need to present your numbers in round figures. The IRS assumes the numbers are tweaked to produce such controlled results.
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