While it only happens to a handful of people every year, with IRS statistics saying it’s just 1 percent, the prospect of getting audited by the Internal Revenue Service is something that nobody wants to deal with. It is important to know, that despite what the IRS stats say, the variation in audit rates for some groups can be quite substantial. As a matter of fact, there are some types of returns that have average audit rates that are as high as 17 percent.
Chances are that if you are a member of one of those groups that is more likely to get audited, you probably want to know. Here, then, are the groups that are most likely to get audited by the IRS:
Small Business Owners and Self Employed People
When you file your taxes, do you include a Schedule C or Schedule E? These are the forms that the IRS wants people to use to report any income that comes into a single member LLC, sole proprietorship, rental properties, and partnerships. These folks are at a much greater risk of being audited by the IRS. If your small business is doing really well, and you report income in excess of $100,000 your chances of being audited jump up to 3.5 percent.
Small business owners and self employed people get audited more often because they have access to report more deductions. Some people tend to exaggerate certain types of business expenses, like entertainment expenses and business meals. The IRS knows this, so they tend to audit these folks frequently.
High Income Individuals
The more money you make the better your chances of getting audited. The IRS Data Book states that only 0.4 percent of people who make less than $200,000 per year get audited. On the flip side, people who bring in between $200,000 and $1 million per year are eight times more likely to get audited. And if you were really successful, bringing in over $1 million, your chances of being audited would increase to 12 percent.
Corporations that file corporate tax returns yearly are always a very interesting target for the IRS. This is especially true of those with very large corporate assets. This is pretty easy to understand – corporations always have a lot more money than individuals, so there is a better chance that the audit will prove to be fruitful to the IRS. A corporation with less than $1 million in assets has just a 1 percent chance of being audited, while companies with over $10 million in assets have an audit rate of about 17 percent.
Getting Prepared for an Audit
Just because you fall into one of these categories, that doesn’t mean that you have to be fearful. The majority of the time, getting through an audit is pretty simple. The IRS usually requests for you to verify a few items that are listed on your tax return. In fact, most of the time you can handle the entire situation by mail. If you are able to provide documentation to back up everything on your tax return, you should have no worries at all. That being said, however, if you do get a notification that you will be audited, it never hurts to get professional advice from an accountant or some other financial professional in your area.
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