The tax filing deadline is fast approaching, and that means many taxpayers will no doubt be struggling over the next week or so to sort their returns. But while you may be interested in rounding up your papers and carefully checking your tax details, one thing that should worry you less is the idea of a tax audit. This is why.
1. They are very rare
You will often read about tax audits on the news or watch them happen on television. But in reality, they don’t happen that often. In fact, less than 1% of tax returns are audited each year, and given the COVID-19 crisis, that percentage is unlikely to rise this year. Many IRS offices remain closed in light of the pandemic, so there is a good chance the agency is even less equipped to handle audits in 2020 than in previous years.
2. They are even less common for average workers
If you have an extremely high income, or have no income to report, your chances of being audited are higher than usual. But if you report an income between $ 25,000 and $ 500,000, then the chances of your tax return being marked are actually well below 1%.
But don’t assume that you are required to be audited because do have a higher income to report. Taxpayers with earnings between $ 500,000 and $ 1 million only have a 1.10% probability of being audited, and that figure only rises to 2.21% for those with earnings between $ 1 and $ 5 million. It is only the ultra-wealthy, those who make more than $ 5 million a year, whose audit possibilities are starting to increase substantially.
3. They rarely happen in person
Many people imagine a tax audit as a face-to-face confrontation with a terrifying IRS agent. And why wouldn’t they? This is how movies tend to portray him. But one thing you should know about the IRS is that it doesn’t have enough staff, so the agency doesn’t have the means to go to the door of every filer whose taxes need a second review. By contrast, the vast majority of tax audits are conducted by mail, and generally, all you need to do is provide the IRS with additional information to support what you’ve claimed in your return. In other words, even if you They are audited, likely not an event.
4. You can take steps to reduce your risk
Let’s be clear: try your best to avoid an audit, in some cases it can’t be avoided. But some key moves on your part could substantially reduce audit risk. For one thing, report all of your income – that includes the $ 20 in interest income you received from the bank and the $ 600 you were paid for doing a project in parallel. Every time you receive a 1099 form summarizing income outside of your regular salary, the IRS also receives a copy, and matching that information is crucial to avoid an audit.
Then make sure your deductions are based on firm numbers, not assumptions. If you are claiming a medical expense deduction, it is unlikely that exactly $ 3,000 turned out, while $ 2,892 is a more credible figure.
Finally, make sure the deductions you claim make sense given your income. It is unusual for someone who makes $ 50,000 a year to give $ 20,000 to charities, and if that is what you are claiming, your return may be marked. On the other hand, if you report an income of $ 250,000, it is conceivable that you have given $ 20,000 of that money.
Many people worry about getting audited every year, but the reality is that it’s much better to focus your energy on getting your taxes done on time and without mistakes. Avoid rushing through the filing process, and there’s a good chance the IRS won’t ask questions again.