Audit. It’s one of the scariest words in the English language. It’s a real fear that grips many Americans during tax season. While most of us have all our ducks in a row, we still fear getting audited. What if we missed something? It could be something small, but it could still hurt us down the road.
The fear of being audited might also increase in times when the tax law changes. That’s exactly what happened this past year. The federal government under President Trump decided to give Americans a tax break. With that comes a whole new tax law and guidelines in which to file. Many deductions we’ve relied on for decades have changed or were wiped out.
While President Trump set out to making filing taxes easier, most people don’t fully understand the process. By making a simple mistake, it can increase our chances of getting an audit. That fear is always in the back of our mind, but it may comfort you to know the odds of that happening continue to decline.
How the Audit Man Looks for Prey
When it comes to being subjected to an audit, your odds increase the more money you make. That doesn’t mean someone who makes less money will never get audited. In reality, the IRS really only cares about the bigger fish. If you make upwards of $1 million or more, the higher the chance of receiving an audit.
The more money you make, the greater the chance of having something to hide. That’s because the higher you go in the tax bracket, the more you owe. There’s a reason why a lot of big-time corporations and millionaires try to hide some of their profits overseas. If there are any anomalies in what they report, the audit will come.
Still, that doesn’t mean someone in the middle or lower class won’t be selected for a look in the books. The IRS will still want to make sure you’re doing everything the right way. So, how does it decide who to audit and who to spare from this torture? It’s all about comparing the deductions of everyone in your income bracket.
“The IRS uses … a computer program that compares your deductions with those of others in your income bracket” said Kristian Finfrock, financial advisor and founder of Retirement Income Strategies. “While this should not scare you away from taking proper deductions it should be noted.”
How to Avoid an Audit
If you do business a little different than the average person, your tax filing might stand out. For example, you might take out certain deductions others won’t. This is true if you run your own business from your home. Still, you should be shy about taking every deduction that can bring down your tax bill.
The best piece of advice is to ensure you have all your ducks in a row. Are all of your facts accurate? Have you double-checked your math? Did you use the right information, like Social Security numbers? Are there any mistakes on your forms? Did you sign everything and file on time?
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“The higher up you are on the income ladder and the more complicated your return, the more likely you are to be audited,” Finfrock said. “So, do everything legally, ethically, and morally to reduce and eliminate taxes but never do anything illegal!”
In the end, if you really fear being selected for an audit, file your taxes with a professional. Many companies will offer protection plans to help take care of the auditing process for you. Tax professionals certainly are more knowledgeable on the process, deductions, and more. At the end of the day, the odds of an audit are pretty slim.
