Most people are somewhat uncomfortable with the word “scrutiny.” By and large, we don’t have much to hide, but still, the idea of someone or something examining any aspect of our lives with a fine-tooth comb is going to make us nervous.
Nothing captures that fear like the idea of an audit by the Internal Revenue Service.
In fact, the very word “audit” strikes dread into the heart of any taxpayer, and every year, thousands of Americans undergo a bookkeeping inquisition that they’d really rather avoid.
Go Banking Rates wants to help you do just that by taking a look at the IRS audit process and pinpointing the best and smartest steps to keep Uncle Sam out of your living room. Let’s start with the process.
The IRS and Auditing
The IRS’ Fiscal Year 2009 Enforcement Results tell us the following:
- There are 21,059 IRS auditing employees
- They collected $48.9 billion through their audits
- Individual taxpayer returns totaled $138,949,670
- There were 326,249 field audits conducted
- There were 1,099,639 correspondence audits
- A total of 1.03 percent of all tax returns were audited
While that last figure is sure to make everyone breathe a sigh of relief, the fact remains that 1.03 percent of us were audited last year, and anyone who files taxes is fair game. Some of us are more likely to go under the microscope, however.
Who is More Likely to Get Audited?
In general, the more money you make the higher your chances of being audited. The IRS lays it all out as follows:
| Income | Returns | Audits | Audit Rate |
| Less than $200,000 | 133,924,956 | 1,550,600 | 0.96% |
| $200,000+ | 5,024,714 | 145,153 | 2.89% |
| >$1,000,000+ | 441,715 | 28,349 | 6.42% |
Most mere mortals make much less than $200,000 dollars a year (let alone a million or more) and so don’t have too much to worry about when it comes to being audited.
What Activity Could Trigger an Audit
Still, everyone needs to avoid “red-flag” activity that could trigger an IRS audit. Some ways to avoid being audited include:
1. Triple-check your math. The IRS goes over your numbers and corrects them when they come across mistakes, but too many could call your entire tax return into question, thus prompting an audit.
2. Make sure your return is neat and legible. This might sound picayune, but if you think about it, a tax return that’s got all kinds of numbers erased or crossed out — not to mention smears and stains — is going to make you look disorganized and hence more error-prone. What’s worse, it could also make you look like you were creating numbers on the fly as you tried to make them come out a certain way. If you’re going to do that, do it before you actually tackle the IRS form itself.
3. Make deductions carefully. If you get too greedy and inflate deductions, or come up with some real eyebrow-raisers then you’re setting yourself up for some unwanted scrutiny. Deduct the real numbers, and keep your paperwork handy. If you want to deduct something but you think it might look weird, make a photocopy of the receipt and attach it to your return.
4. Report ALL income. When you earn money, whoever pays you is required to notify the government too, in the form of a W2 or 1099 form. If you forget to include income from one or more sources you can be sure the government won’t, and will either correct and readjust your return or take a closer at it. This will also be true of other earnings and capital gains, such as the sale of property or receiving an inheritance. If you’re not sure about how to proceed then get professional advice.
When it comes to avoiding an audit, don’t rely on luck and the odds. Employ some common sense when filing your tax return, err on the side of flying under the radar, and be prepared for any outcome. If you do you’ll be ready to face an audit with either a smile, no fear, or both.