No one wants to face the tension of the vigorous tax audits conducted by the IRS every financial year. The chances of getting audited by the IRS depend on various factors. Let’s see some factors that can increase these chances, even though it is not possible to tell with full certainty who will face a tax audit and who will not.
If you are earning more than $200,000, then there is more than a 50% chance that you will get audited. Self employed individuals are also more likely to face a tax audit, especially those who report losses for many subsequent years. And if you have numerous deductions that make your tax liability zero, you again face a higher chance of getting audited.
If you have a small business, keep accurate reports of expenses and earnings. Hire a financial advisor to help you out. If you claim large travel expenses and high bonuses, then the IRS will get suspicious and double check facts. If your family members work as employees in your business organization, make sure you have records of what work they do.
Generous individuals, who give most of their income to laudable causes, have more chances of getting audited. IRS is justifiably suspicious of people who claim large charitable expense deductions relative to their income. On the other hand, donating a small part of your income would rarely trigger an audit.
If you have made mistakes in filings such as mathematical mistakes or incorrect Social Security number, then you are likely to face scrutiny from the IRS. You can use tax preparation software to avoid calculation and transcription mistakes that you are likely to make if you are manually filing your returns. Do not round off the numbers – give as much accurate data as you can. You should give correct information and substantiate your claims with strong evidence.
If you have opened an overseas bank account in a foreign country to transfer large amounts of money, it could raise the suspicion of the IRS. Also, people who have received income by cash will face greater scrutiny as it is then easier to hide this kind of income.
If none of the above factors or situations applies to you, it does not mean that you will not face a tax audit. Since the IRS does not have a fixed formula to conduct an audit, you could also face scrutiny – so it’s best to have your documents in order for such a situation.