Audit Triggers - Part 2

Yesterday I published a couple of likely triggers for an audit. As promised, here are a couple more:

High Income – Although a higher income should be considered an advantage under any other circumstance, considered from the perspective of prospective audits it is most certainly a disadvantage. And the chances of an audit jump up significantly with each income level. Past audits tell us that the chances of an audit for taxpayers making less than $100,000 is 0.93%. For incomes over $100,000 the chances jump to 1.77%, over $200,000 brings the odds up to 2.87% and over $1 million in income brings the chances of an audit to a whopping 9.37%!

Self-Employment – Because self employed taxpayers are constantly keeping an eye on their bottom line they tend to be aggressive at writing off expenses. While there are many legitimate reasons for doing so the IRS likes to verify these deductions.

While these are some of circumstances that may trigger an audit they do not necessarily guarantee one nor will avoiding them remove all possibility of one. The best defense against an audit is to always expect one. Taxpayers should make sure that their deductions are legitimate and reasonable. They should also keep well ordered records and receipts.

However never having to face an audit is certainly the best circumstance. Keeping these triggers in mind can help taxpayers reduce the risks of that happening.

Audit Triggers - Know what the IRS is looking for...

With the tax clock ticking down lots of people are finishing up their tax returns. A common question that comes up during this joyous time of year is, “How can I avoid an audit?” Fortunately for most taxpayers the question is far more common than an actual audit. Only around 1% of all taxpayers actually end up facing an audit.

Comforting as that fact is, it is in no way instructive. Knowing what is more likely to trigger an audit can go a long way to avoiding one. Avoiding these triggers will not guarantee that an audit will not occur but it will reduce the chances of one. While all of the reasons that the IRS launches an audit aren’t known, crunching the statistics of past audits does demonstrate some clear triggers.

High deductions – Any deduction that is proportionally high to the taxpayer’s income usually constitutes a red flag. Determining what’s high is the trick here. The IRS publishes an annual book, “Statistics of Income.” Although the book gives ranges for typical incomes some logic needs to be applied. If a taxpayer is at the lower end of a particular income range but claims the upper limits of deductions associated with that range then that deduction may still trigger an audit review even though the deduction is technically within the accepted limit.

Cash Income – Any profession that deals with a lot of cash, such as waiting tables, tends to spark the curiosity of IRS audit agents. One of the first things they compare in cases such as this is bank deposits vs. claimed income.

These are a couple of common triggers that can set off an audit. Tomorrow I'll share another couple of potential red flags. Remember, avoiding these doesn't necessarily guarantee avoidance of an audit but it can certainly reduce the possibility of one.

The IRS Wants to Hear from You

Got some advice for the IRS? They want to hear it.

The US tax collection agency is looking for citizens who want to give their input about how it does its job. To qualify prospective panelists will need to pass a criminal background search and be willing to commit between 300 and 500 hours per year. Oh, yeah, their taxes need to be up to date, too.

For more information check out www.improveirs.org or call 888-912-1227. The deadline is April 30.

Where’s My Check?

The first rebate check from the IRS likely surprised more than a few recipients. Even with all the press it got, did anyone really expect it to come through? I mean the IRS actually giving back money?!? It just didn’t add up.

But this time around is different. History proves that it can really happen and now that we’ve heard more than a few times from Washington to expect a check this year people are asking questions. They are starting to wonder exactly when their check will come, what they can do to make it come faster and how they can make sure that they are eligible.

Trust me; IRSProblemsResolved knows that these are the questions that people are asking because they’re asking us these questions. Fielding these queries has become a pretty regular occurrence here at the office.

So, it’s not with a little relief that I can now report that the IRS has set up a special phone number that taxpayers can call with questions about the 2008 stimulus package checks. The IRS announced that people can call (866) 234-2942 with questions about their checks. There is also information available at IRS.gov.

Other problems with the IRS like back taxes, threats of levies, wage garnishment, etc. are where we shine. If you’re facing these sorts of issues or have other problems with the IRS we’d be glad to talk to you about them. Contact us with your IRS questions here.