When you think tax audit, panic and anxiety may set in. There are two kinds. The first is a correspondence audit, which is the mildest form, in which the IRS asks for information to be mailed in. A more complicated one requires that you meet in person with an IRS representative either at their office or your own. This type of audit may cover multiple years and/or sections of your tax return.
Kevin Thompson, CPA says “for aggressive taxpayers, it’s a great time to be alive.” Your chances of a tax audit are at a low level right now. There has been a six-year decline in audits with only 1,000,000 taxpayers selected. The number of people being audited dropped 16% between 2015 and 2016. In the last 12 years, fewer people were audited and the population of U.S. taxpayers has expanded by approx. 30 million people.
The cause of the decline
The IRS has experienced budget and funding cuts in recent years and that has resulted in a decrease in IRS employees and enforcement agents. Because a citizen’s chances of a tax audit are lower the government has received less in revenue. IRS commissioner John Koskinen reported that about 2 billion in revenue has been lost as a result. Thompson says “if there was ever a time when REAL tax reform should be implemented, now is the time. The Internal Revenue Code is too complicated, contains too many loopholes and, in many instances, is unmanageable as the IRS has experienced.”
Weighing your chances of a tax audit
Those in a higher income bracket are at greater risk of a tax audit. The more money you have the more the government assumes it will find errors. 5.8 % of those with incomes over a million dollars were audited in 2016 as opposed to only 1.7% who were audited with incomes over $200,000.
For those with high incomes, it’s recommended that you keep detailed records so you’ll be ready to respond quickly. It’s best to consult your accountant to determine your chances of a tax audit.
Corporate audits were down by 17% in 2016 and only 0.49% were investigated. Republicans in Congress began defunding the IRS in 2010 and a reversal isn’t expected under the Trump administration. It’s particularly unlikely given the fact he hasn’t released his tax returns due to his ongoing audit.
What you need to do
Even though your chances of a tax audit are lower than in previous years, you still must continue to keep accurate records. Consult your tax preparer to avoid mistakes that could trigger an audit even though your chances are minimal. And, Thompson says “under no circumstance should you represent yourself. Examinations are a serious matter and should be handled accordingly.”
Contact Kevin Thompson CPA
email@example.com or call him @ (310) 450-4625 x102