October 11, 2020 | Tax Audits
Find out If You Are at Higher Risk of IRS Tax Audit in the Upcoming Year?
The biggest fear in the mind of Americans is being audited by the Internal Revenue Services (IRS), but the chances of going through the IRS audit process are very less. Studies have shown that 95% of taxpayers in the United States believe that it is their civic responsibility to pay their taxes and 87% of them have mentioned that it is unacceptable on their part to cheat on their Income taxes. Most of the taxpayers in the US are honest and pay their fair share of taxes on time or a bit late.
But still, people have fear as audits can happen for a lot of reasons which can be beyond cheating the system. Therefore, you must know certain facts about the IRS audit this year.
- One in 220 taxpayers was audited in 2019. There has been a significant reduction from the past records which were one in 90.
- The reduction in audits came from a reduced tax agency budget and a decrease in IRS personnel.
- COVID-19 has dropped the possibility of audits in 2020. Many IRS offices are still shut, and pandemic constraints make the procedure challenging.
- Affluent taxpayers may soon have a higher chance of being audited in 2021. The IRS was condemned for auditing several lower-income taxpayers in 2018. Since then they had said that they would examine more high-income people.
- 30% of high earners were inspected a decade ago, but just 7% of them had gone through the process in 2018.
- Taxpayers with lower incomes and who appealed the Earned Income Tax Credit meanwhile made up 39% of the complete audits in that year.
NYC Tax lawyers believe that the federal budget would increase IRS funding, as a result of which more hiring will be done for audits to support an increase in those conducted on the wealthy. Middle earners seem to have the least chances of being audited, though.
Tips To Avoid an IRS Audit
It is nearly impossible to predict how many people will the IRS audit in the coming year, but there are steps that you can follow to significantly lower your risk. These include:
Keep Better Records: It happens with lots of people that they make mistakes while filing their returns as they forget about forms they have received or specific streams of income. Always maintain your records throughout the year, which includes documents like outlay receipts. Make sure you keep all of them in one place so that you have them all before you start to file. This will help you avoid misperception and errors that would be difficult to amend later.
Be Realistic with Deductions: Verify that the deductions you claim are genuine and within the normal parameters of what you would often submit while filing your taxes. If you think you need to claim something atypical, be sure you have the proper documents to back up why it should be acceptable.
Don’t Try To Be Smart With the IRS: This is quite obvious, but many people try to cheat the IRS and tax system every year by claiming unnecessary or unreasonable deductions. They try to make themselves fit into ambiguities that do not apply to them. This increases the chances of an audit because the IRS has in-built systems that flag such claims and ask for additional information.
Penalties may occur if you make false claims and don’t have documents to support them. This will make your decision to lie or swindle a dangerous gamble. If you are honest about what you have made and claim the right deductions and credits, it is unlikely you will have a negative result from an audit.
File Electronically: The IRS inspires taxpayers to submit their returns by electronic means because electronic returns are more precise as compared to those that are filed through hand-written forms. The chances of error in the case of paper returns are 21%, according to the IRS, while it is just 0.5% for e-file returns. This is because the e-system of filing returns has been made keeping safety measures in place to help reduce such issues.
Be Cautious with Home Office Deduction: Many people are curious to overdo home office deductions when they work as independent contractors or run businesses out of their homes. Such deductions should be perfectly defined within the characterization of “reasonable,” as it could be a huge red flag to the IRS if you claim a home office deduction that is a part of your income.
In other words, don’t try to deduct your whole monthly rent payment as your home office deduction, but as an alternative, claim just the percentage of your home that is essentially used specifically as a workplace. Any claimed work expenditures should be entirely business-related.
Work with Qualified NYC Tax lawyers: Take the help of experienced tax attorneys who could guide you through the whole fling process and make sure you are making accurate filing so that you can avoid an IRS audit. These tax experts can evaluate everything and make sure you are following all rules and regulations that apply to your situation, plus help you express “reasonable” claims.