Being audited by the IRS can feel overwhelming, especially if you have never worked with the IRS in the past. If you are fearful of being audited personally or you worry about your business in the Fort Worth area, there are a few tips to minimize the risk of being audited.
What is a tax audit?
Tax audits are not uncommon and are a practice conducted by the IRS to investigate potential fraud or scams committed against the IRS system and U.S. taxpayers. Audits typically involve a forensic accountant inspecting expenses, income generated and other records necessary to prove that an individual is not attempting to cheat the IRS.
Why people are audited
Often, tax audits are randomized and selected via a computer-generated algorithm. Most audits occur for individuals who are earning more than $200,000 annually. The audit rate for those who are earning over $200,000 each year is currently 1% whereas the audit rate for individuals earning more than $1 million is 2%.
Tips to avoid audits
There are a few tips that can minimize your risk of being flagged and investigated by the IRS. These include the following:
- Always file a tax return, even if you are unable to pay what is owed to the IRS.
- Avoid failing to report all income to the IRS, even from third-party payors.
- Avoid claiming too many deductions, especially if they involve gambling losses or other items not permitted.
While it is not always possible to prevent or avoid an audit by the IRS, there are a few steps to take to minimize your risk of being flagged or picked up by the automated IRS systems. If you do face an audit, dealing with the IRS is much easier with an attorney who understands tax law to guide you through the process.