Attracting attention can be a fantastic thing. You can attract the attention of a boss who notices all the hard work you’ve been doing and gives you a bonus or a promotion. As a young athlete or performer you can attract the attention of a talent scout who wants to sign you to a contract. You can attract attention to a charitable cause through effective marketing tactics and promotion.
But when is attracting attention a bad thing? Perhaps when you attract the attention of the police because you are speeding. Maybe you attract the attention of a bear while camping. Or, maybe you attract the attention of the IRS in the form of an audit thanks to the contents of your tax returns.
“But aren’t all audits supposed to be random?” you might ask. Well, the simple answer is no. This is a common misconception about the IRS, and in this case, ignorance of this fact is not bliss.
While some of the audits conducted by the IRS every year are randomized based on a statistical formula, a significant percentage of the audits conducted by the IRS are selected based on specific factors and discrepancies.
This may seem like bad news—knowing that you might make a mistake or do something to cause the IRS to audit your returns. Some people take solace in the false thought that audits are entirely random, meaning there is minimal risk of having your returns singled out. However, by understanding what types of factors the IRS is looking for, you can take control of your tax returns and minimize your chances of facing an audit.
Though nothing will entirely eliminate the possibility of being audited by the IRS, here are some some of the factors which may attract their attention:
Major year-to-year discrepancies
Did you make significantly more money this year compared to last year? Or alternately, did you claim far less income this year than you did last year? While sometimes this is unavoidable, major year-to-year discrepancies will usually stand out to the IRS.
Document discrepancies
If the income you claim on your tax returns doesn’t match up with the income noted on your W-2s or 1099s—copies of which are provided to the IRS—then your returns will likely be a strong candidate for auditing. Similarly, if there are significant discrepancies in any other documentation provided to the IRS regarding your taxes, this will stand out as a red flag.
Big bucks
Unfortunately, the more money you make the more likely you are to get audited. The vast majority of Americans have an incredibly low chance of facing an audit. In fact, less than 1% of all tax returns get audited every year. However, if you make over $200,000 in a year, your chances of getting audited nearly triple. If you make over $1 million, your odds of getting audited jump to approximately 10%. At $10 million, your odds double again to 20%.
Major deductions
If you claim a significantly higher number of deductions than average, especially compared to the income you claim, your return will likely stand out to the IRS. This includes abnormally large charitable deductions.
Small-business owner/Self-Employed
The IRS doesn’t hesitate to go after the little guy. They know that small businesses and those who are self-employed are statistically more likely to make mistakes on their returns. The IRS is more likely to want to take a closer look at those returns to ensure they are accurate. They are also much more likely to scrutinize these individuals if they claim 100% business use on their vehicle, since it is actually very rare that a small business owner truly uses a vehicle he or she owns solely for business purposes.
This is just a sampling of the types of things that can attract unwanted attention from the IRS. If you are facing an IRS audit, do not panic. Contact Attorney Robert V. Boeshaar today to learn how we can help!
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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