Your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals some interesting and reassuring facts about the risk of an IRS audit.
Audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been declining steeply over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller workforce.
Audits target the rich. It’s a fact: IRS audits happen most often to the super-rich. The statistical chance of being audited increases dramatically for people of higher income levels.
Missing data gets you audited. High income isn’t the only thing that gets you audited. Any missing data on your return can also trigger an audit, since the IRS usually receives a copy of the same tax forms you get every year.
Standing out gets you audited. The IRS takes a close look at business expenses, charitable donations, and high-value itemized deductions. They have statistical data on what amounts are typical for various professions and income levels. If your return stands out from what is “normal,” it may be flagged for review by the agency’s computer system.
More audits are done by mail. If you face an audit, it’s most likely that it will be done by mail. Only about one in four IRS audits are field audits conducted in person by an IRS agent. The most common issues, such as math errors or missing data, are done through mail correspondence.
Most audits end up costing you. You can fight the tax law, but the tax law usually wins. Most people audited by the IRS end up owing additional tax. Only 11 percent of correspondence audits and 8 percent of field audits concluded with a “no change” finding in favor of the taxpayer.
That being said, if you’d like use auditing principles within your own business, you may quickly discover ways you can enhance your firm’s full-year performance. If you’d like to learn more ways to save your business money, give us a call. You can reach us at (360) 671-0700, or send us an email using the form below.