The biggest fear many Americans have is getting audited by the IRS. Even though this fear never seems to go away completely, the odds of you getting audited have started to decrease. The reason for the decrease stems from the fact that the IRS keeps decreasing their number of employees. In 2012, the IRS reported a 0.8 decrease in the number of audits it would be conducting from the previous year. For the 2014 fiscal year, the IRS recently reported that only 1% of taxpayers were audited.
Don’t assume that the fact that the number of audits the IRS conducts each year is decreasing means that you don’t have to worry about getting audited. It’s always possible. The best way to avoid the stress and aggravation of an IRS audit is making sure you avoid this IRS tax audit red flags.
Large Increase in Salary
If you got a new job, received an inheritance, or had some investments that performed well, you should expect to be targeted for an IRS tax audit, and the more your income increased, the greater the odds of the audit become. If you know you’re going to be filing a larger income tax return, it’s in your best interest to meet with a professional tax preparer before the end of the fiscal year to discuss the type of deductions you can and should claim.
One of the things that causes a vast majority of business owners to be the target of an IRS tax audit is a high number of questionable deductions. The IRS understands that as a business owner or freelance contractor that you have a certain amount of expenses that can be claimed as tax deductions, however if every meal you eat or each movie/play/sporting event you attend during the course of the fiscal year is claimed as a deduction it’s likely they’ll launch an IRS tax audit. They will also want you to prove that you really do only use your car and computer for business and never for your personal use.
Cashing in a Retirement Plan Early
Before you withdraw funds from your retirement fund, stop and ask yourself if you really need the money. Making a withdrawal before you’ve turned 59½ serves as a massive red flag to the IRS. Not only will you be required to pay a 10% withdrawal penalty, but the odds of your being the target of an IRS tax audit also increase.
Have you Been Audited Before?
It’s not fair, but if the IRS has previously audited you, the odds of you getting audited a second time increase, though it’s difficult to determine when the second audit will take place, so you need to be extra diligent about making sure you’re upfront and honest on each and every tax return you file for the rest of your life.
If you’ve been audited and the IRS determines you made an error on your returns and is now coming after you for back taxes, seek the assistance of an experienced tax attorney who will do everything in their power to get you a manageable settlement.