YOUR chances of being chosen for audit has been miniscule for more than 10 years. IRS was underfunded and understaffed. They didn’t have financial resources to hire and train auditors. That’s about to change. Recent budget has allowed them to hire and train auditors for the coming years. Bad news.
For now, let’s talk about your chances of audit based from prior year statistics:
1. The audit rate among taxpayers with incomes of $25,000 to $500,000 is about 0.5% (or ½ %).
2. Taxpayers with incomes $500,000 to $1 million have an audit rate of 1.10%.
3. Taxpayers with incomes of $1 million to $10 million have an audit rate of about 2.2% to 4.2%.
4. Taxpayers with incomes of $10 million or more is 6.7%
5. Taxpayers who report no income have an audit rate of 2.0%.
How to lower your chances of audit in 2020 with two simple rules:
The first rule is to submit a return in such form that it gets “lost” in the crowd. To have a return pulled out for any reason increases the chances of an audit. To submit a return with wrong social security numbers, math errors, and missing schedules is like waving nice little red flags.
The second rule is to present the return in such a way that if it gets picked out for manual review, it does not generate curiosity for further verification. For example, claiming your father, mother, niece, nephew, uncle, and aunt as dependents and again claiming payments made to these same dependents for childcare is not in keeping with this rule. In other words, don’t.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation.
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He retired after 50 years of defending taxpayers audited by the IRS, EDD, BOE and other governmental agencies. He published a book on “How to Avoid or Survive IRS Audits.” Readers may email tax questions to [email protected].
