Income Levels When The IRS Starts Auditing You

While we all fear an asteroid blowing up the planet, a more realistic fear for most of us is getting audited by the IRS. Well, new statistics are out telling us when the IRS starts auditing taxpayers.

The IRS typically looks back at your three past tax returns when considering whether an audit should be done. What are the specific factors the agency looks at in making that determination? Well, that is a state secret. The agency develops profiles of niches and then compares their tax return information to the profile. If you fall outside of the profile in some certain way, you stand a good chance of getting audited.

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The IRS does not release these profiles to the general public. This is hardly surprising if you think about it. So, how do you know whether you are at risk? Well, one huge factor is how much money do you bring in and claim as income? The IRS has been taking a business approach to tax collection since the middle 1990s. This means the agency wants to get the most return it can for its effort. This new approach has had a practical effect on audit rates. Let’s take a look.

The statistics for IRS audits that have just come out reveal something significant. If you have total income of less than $200,000, you have a 1 in 100 chance of being audited. This is a low number. People that bring in more money have a much higher chance. People who earn up to a million dollars a year have a three percent chance while those earning more than that have a six percent chance.

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Now, it is important to understand what an audit is. There are different types. From September 30, 2008 to September 30, 2009, the IRS performed 1.4 million audits. Of this number, one million were “correspondence audits”. This means the IRS simply sent a letter asking for clarification, supporting documents or more money. I actually received one of these. I failed to pay a late penalty on my tax payment according to the IRS. I checked and the agency was correct. I sent in my payment of less than $100 [it was a bad year!] and my “audit” was over with a minimum of fuss.

Does the audit still perform big, nasty examinations? Yes, but the chances of you going through one of these are remote at best unless you are just obviously doing something fishy.

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