If You Fall Into One of These Seven Categories, the Irs May Audit You!
As if filing taxes wasn’t stressful enough, there’s also the constant fear of getting selected for a tax audit. Audits, it seems, lurk around every corner, if pop culture is to be believed.
So, unwind. Between 2010 and 2018, less than 1% of individual filers — 0.63 percent in reality — were audited. That isn’t to suggest you won’t be audited at some point. There’s always the possibility that an error or omission on your return will prompt a second check.
Audits, on the other hand, aren’t entirely random. Certain people tend to set off more alarms than others, increasing their chances of being audited. Here are seven things that can make you more likely to get audited.
1. You keep track of your deductions by itemizing them.
The more intricate your tax return is, the more likely you are to make mistakes. You may be more likely to be audited if you itemize your deductions rather than using the more popular standard deduction. If you choose to itemize, keep all of your paperwork in case you need to prove your claims.
2. You work from home or are self-employed.
Self-employed individuals, freelancers, and those who work from home may be eligible for a variety of tax benefits not accessible to the average employee. If you work from home, for example, you can frequently deduct a percentage of your housing and utility bills.
However, there’s a lot of tiny print in these deductions that it’s easy to overlook; they’re also ideal for, well, exaggeration. Deductions that appear to be out of the ordinary may be enough to prompt an audit.
3. You own property in a different country.
It’s not uncommon for people to utilize overseas banks or investments to avoid paying taxes in the United States, and the IRS is fully aware of many of these schemes.
If you have assets or cash in another nation, an auditor may examine your bank accounts to ensure you’re reporting income and assets correctly both at home and abroad.
4. You were given a monetary advantage based on your income.
Some of the credits or advantages you can get are depending on your income, and the IRS will double-check to make sure you’re eligible. Many returns that include the Earned Income Tax Credit (EITC),
for example, will be reviewed again to confirm that the income requirements are met. Expect the IRS to double-check that any stimulus checks you’ve received were within the income threshold.
5. You have no negative net income to report.
Those whose returns claim no net income or a negative net income are the most likely to be audited, aside from the very wealthy. This could be due to larger-than-expected investments or business losses for the year. However, less than 0.5 percent of those who file usually fall into this category.
6. Your earnings and lifestyle appear to be at odds.
The IRS uses automated technology to help process the millions of returns it receives each year. These systems employ algorithms that seek for anomalies, especially when your salary does not appear to be adequate to sustain your lifestyle.
If you make $50,000 but donate $40,000, for example, you’re likely to raise some eyebrows. Similarly, if you’re claiming a tax credit for a six-figure mortgage but your salary isn’t sufficient to sustain such a loan, your return may be scrutinized further.
7. You’ve amassed a fortune of a million dollars.
People with annual earnings of $1 million or more are audited at a higher rate than those with smaller incomes. And the bigger your income, the more likely you are to be audited; persons with earnings of $10 million and up are routinely audited.
When you think about it, it makes logic. Who is more valuable to the IRS: someone who is underpaid by $500 or someone who is underpaid by $500,000?
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An audit isn’t the end-all solution.
Although seeing the IRS emblem on an envelope in the mail can make your heart skip a beat, it’s not quite as frightening as popular culture portrays. In many circumstances, an audit is the result of a mistake on your tax return rather than a fault with the math.
And audits don’t always imply you’ll owe more; in some cases, audits result in a higher return rather than a worse one.
Keep your tax documents for at least three years in any scenario to guarantee you’re ready when that dreaded letter arrives in the mail. You should also be aware of any tax preparation software or firms’ audit protection policies.
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