If you’ve been losing sleep over the possibility of a tax audit, put your mind at ease. Here are five reasons why you might want to stop worrying about it.
A Tax Audit is Not Always Trouble
An audit doesn’t automatically mean you’re in trouble. Sometimes, it’s just a random selection. Even if there’s a discrepancy in your return, like a math error or typo, the IRS may simply ask for additional documents or an amended return.
Time Limit
Most tax audits focus on returns filed within the last three years. Rarely do they go back more than six years, so you don’t need to worry about ancient tax seasons.
Reduce Your Risk
Certain items on your tax return can attract the IRS’s attention. Just be diligent and accurate in your data collection which can reduce your chances of an audit.
Stay Calm
If the IRS does audit you, don’t panic. It’s a specific process, and you can work through it with the right documentation. This is why it is important to work with a certified tax preparer or better yet, an Enrolled Agent. An Enrolled Agent (EA) is an individual who has earned the privilege of representing taxpayers before the Internal Revenue Service (IRS).
What is an Enrolled agent on IRS.Gov
Low Audit Risk
For taxpayers in the middle or lower income range and have relatively uncomplicated taxes, the likelihood of an IRS audit is quite minimal. For example: between the years of 2010 to 2019, the IRS audited approximately 0.25% of individual tax returns on record.
Low Audit Risk information on gao.gov
The IRS usually focuses their audits on high income earners. In 2019, a little more than 2% of Americans earning more than $5 million per year had their taxes audited. That’s down from 16% in 2010. “For taxpayers earning over $1 million, there has been substantial reduction in audit rates, but they are still audited more frequently than taxpayers earning below $200,000,” said Alex Muresianu, a policy analyst at the Tax Foundation.
Article on declining IRS audits at CNBC.com
Learn how to avoid the possibility of a tax audit…
- Be thorough and accurate when reporting all of your expenses
- Itemizing tax deductions with accuracy is essential
- Provide appropriate details when required
- File your taxes on time, as much as possible
- Avoid amending returns. If you must, proceed with caution
- Check your math. Now, check it again
- Avoid using round numbers
- Do not make too many deductions
Although there is no guarantee that the IRS won’t audit you, knowing some specific facts about tax audits during the filing process can help alleviate your concerns.
Make sure to check out our article “Mid-Year Business Tax Review: Maximizing Tax Efficiency” which can assist you in alleviating those tax audit worries.
This blog post serves as informational content and does not constitute legal or financial advice.
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