Approximately 1.11% of 2010 individual tax returns were audited in 2011. This was the same for the previous year. The rate has stayed around the 1% mark for many years, but what are your chances of being audited?
The audit rate for taxpayers with an income of $200,000 or more almost quadrupled to 3.93% from 1.02% of taxpayers with an income of $100,000 or less. Close to one out of 25 of these returns were audited by the IRS. For people whose income level was above $1 million the odds of being audited jumped to one out of eight. The higher the income the higher chance you have of being audited.
The IRS also flags returns for other various reasons:
Income that was not reported. The income reported on your return is matched by the IRS with your W-2s and 1099s that it receives.
Travel and entertainment deductions. Deductions for business use of vehicles is watched closely by IRS agents. This is traditionally the prime audit target.
Large charitable gifts. Charitable deductions are compared to the amount of your income. If the two amounts are disproportionate it raises red flags.
Home office deductions. Taxpayers may do some work at home, but this doesn’t necessarily qualify them as having a home office.
Rental real estate losses. Unless you actively participate in rental activities, losses aren’t generally available to you.
Cash businesses. The IRS is more likely to pursue your firm if you are usually paid in cash.
Hobby losses. To claim a loss you generally have to have a bonafide business. Hobbies are not qualified in that area.
Foreign bank accounts.Taxpayers who don’t report income from offshore accounts are a target for the IRS.
Give us a call today at 706.353.1711 to determine whether your tax breaks are legitimate or not.