Many people are worried about getting audited by the IRS.
What’s the chance of someone getting audited? According to recent reports by the US treasury Department, the IRS only audits less than 1 percent of taxpayers. Though the number may seem small when it’s presented as a percentage, the actual number of people who gets audited is quite big. An estimate places the total number of taxpayers in the United States at 138 million so it means that around 1.38 million people get audited each year. While there’s no reason to be afraid of an IRS audit, it’s a serious matter and you should treat it as such. In the event that you are audited, you should know your rights, and find a qualified professional to help you with the case at the right time. On the other hand, you should also understand more about how the IRS determines who gets audited. Why are some taxpayers more liable to get audited than others? Let’s take a look.
For self-employed folks who use either Schedule C or Schedule E form to report their income to the IRS, the likelihood that they will get audited is quite high. One of the reasons why these self-employed taxpayers carry a higher risk of getting audited is the fact that they usually have multiple tax deductions. Knowing that the IRS is an accountable and responsible organization, it makes perfect sense that it will want to check on all the deductions to make sure that they are legitimate. Also, self-employed people who tend to report a net loss over a number of years suffer a greater risk of getting audited.
For obvious reasons, taxpayers who report a high income are likely to be audited. It appears that the IRS is conducting more audits on multi-millionaires. In recent years, the focus has been on taxpayers who make more than $5 million a year but the risk for audit has also risen for people who are earning more than $200,000. To get an idea about your chances of getting audited by the IRS, here’s a rough idea of the risk according to the level of your wealth. If your income is between $100,000 and $199,000, you have an average of 1 percent risk of getting audited. The risk is doubled for people with income of $200,000 to $499,000 and tripled for people with income of $500,000 to $999,000. If you are making $1 million to $4.99 million, the risk is 4 times and the risk is 6.5 times if you are making $5.5 million to $9.9 million. If you are making more than $10 million, the risk is about 10 percent.
If you are running a business where cash transactions are the norm, then, the likelihood of getting audited by the IRS is higher. Since it’s possible to under report the volume of business, the IRS has to try to get an estimate of your real income. Talk to a tax professional if you are concerned about getting audited.
About the Author: This article is written by Bill Holtz. Bill is an avid tax and financial writer for the Internet. You can read more of his work at http://harborfi.typepad.com/