IRS Audits and the Percentages



Relax; the percentages of IRS picking you for audit are very small if you have filed your taxes honestly and properly. The IRS gets a couple hundred million tax returns filed every year. It does not have the necessary staff to audit each and every tax return. In fact, the IRS audits less than 2 percent of tax filers. So theoretically, the possibility of you getting audited by the IRS is very low unless you attract their attention by committing a few mistakes.

One area where you can hurt your possibility of an IRS audit is underreporting income. For zeroing in on possible undisclosed taxable income, the IRS has devised certain criteria. The IRS has computer software that separates the suspect filers from the clean ones. It also filters out filers who have claimed an excess of deductions, have shown losses for successive years and show expenses disproportionate to the size of their business.

If you earn $50,000 and show $10,000 as charitable deductions, your possibility of an IRS audit go up massively. The software will compare your deduction with others in your income group and will find that it is rare that anyone in that income range ever makes such donations. A red flag will be assigned to your file and it is audit time. If you actually have $10,000 in charitable deductions, however, this should not stop you from claiming them. You need to simply make sure that you have all the necessary documents to support your claim of making a donation in that amount.

More than employees, self-employed people are targets of audits as they have the ability to convert personal expenses in to business ones and put it under itemized deductions. Your car mileage and expenses on meals and entertainment must have detailed information backup. The use of a car or truck should have detailed logs and invoices of maintenance. Meals above $75 should have bills and for amounts below that, a simple entry in the diary with details of date, place and name of restaurant and kind of entertainment they provide, person entertained and your relationship to them will suffice.

An IRS auditing is inescapable when they are discrepancies or questionable activities on forms you file. Nevertheless, remember, these items must be deemed odd by the computer sorting out filing papers of every American. As a result, the possibility of you being audited is very small.