This time of year, most Americans are gathering income statements and preparing to file their returns. The good news for both businesses and individuals is that the risk of being audited is low and continues to drop. Last year, the number of people and organizations the IRS audited dropped again—to just over one million. However, for those who were audited, the experience costs time and money.
Why Are There Fewer Audits?
Since 2010, the IRS’ operating funds shrank by over a billion dollars, so the agency had to reduce staff by 17,000 individuals; 7,000 of them were agents responsible for tax enforcement. Only 80,000 employees remain in charge of administering tax laws for the entire nation.
What Are Your Odds?
The current percentage of individual tax returns the IRS scrutinizes is 0.7 percent, meaning they audit one in every 143 individuals.
Your risk of an audit increases the more you earn. Individuals who made more than $200,000 for tax year 2016 were audited at a rate of 1.7 percent. Those who made over a million annually faced an IRS review 5.8 percent of the time.
The IRS audited 0.49 percent of returns submitted by small businesses, large organizations and partnerships.
They Still Might Choose You
It’s still not a good idea to cheat on your taxes: The IRS can audit tax returns within three years after when you filed them.
If they contact you for an audit, they will first send notification by mail on official letterhead. The letter will let you know which returns the audit will include and how the IRS will communicate with you.
The IRS agent’s goal is to determine if you’ve underreported income and get as much out of you as possible. Unsurprisingly, people feel extreme stress when they receive notification of an audit—even if they did everything in their ability to make sure their taxes were correct.
You can answer the IRS personally or hire a professional, but having a representative is generally the best choice. An experienced professional can represent you and help you avoid unnecessary penalties, fees and headaches. If you are facing an audit, Highland Tax Group can help: Contact us to receive expert advice today.