Are you worried about a tax audit in 2017? Take heart -- there's good news... and more good news. The first piece of good news is that your odds of being audited are probably very low. The second is that you can take some actions to avoid being audited, too.
Image source: Getty Images.
First, just how likely are you to be audited? Well, check out the table below, reflecting calculations done by Kiplinger using 2015 IRS data. You'll notice that the odds go up if you're filing Schedule C:
|
Taxable income |
No schedule C |
With Schedule C |
|---|---|---|
|
$40,000 |
1 in 200 |
1 in 42 |
|
$50,000 |
1 in 200 |
1 in 42 |
|
$75,000 |
1 in 189 |
1 in 42 |
|
$100,000 |
1 in 213 |
1 in 42 |
|
$150,000 |
1 in 156 |
1 in 40 |
|
$200,000 |
1 in 156 |
1 in 40 |
|
$250,000 |
1 in 65 |
1 in 50 |
|
$500,000 |
1 in 65 |
1 in 50 |
So clearly, it's unlikely that you'll be audited. You have a less-than-1% chance of it happening, even if you earn a taxable income of $200,000. Still, there are things you can do to keep your odds low. Here are six suggestions.
Image source: Getty Images.
Don't neglect to file a return
You can draw the IRS's attention if you don't file a tax return. Even those with no income or no taxes due need to file a return, explaining that they have no income and/or demonstrating that they have no taxes due. Your odds of being audited are higher if you report no income -- even if you've filed a return. For example, if you have your own business and you posted a net loss for the year, the IRS might want to double-check to make sure you're not pulling a fast one. In 2014, about 5.3% of returns with no income were audited.
Don't make mistakes
Be sure that any numbers you're entering in your return are correct. Double-check your math and be sure you're entering data in the correct boxes. One way to improve the accuracy of your return is to use tax-preparation software instead of preparing your return by hand, and to electronically file your return. Remember to sign your return, too, as unsigned returns can also draw the attention of the IRS.
Don't leave out information
If you fail to report any income, or omit any other information, it can raise flags at the IRS and get you audited. It might just be a seemingly inconsequential dividend payment that you don't want to bother mentioning, but it needs to be included -- not only because it's the right thing to do, but also because the IRS will probably already know about that payment to you and will be wondering why you haven't mentioned it.
Entities that pay you generally report this information to the IRS -- whether they're reporting salary payments, dividend income, interest paid, or something else. The IRS then expects your return to include all of these payments.
Here's hoping Jackson Pollock didn't prepare his tax returns by hand. Image source: Flickr user Sharon Mollerus.
Don't be messy
You can increase your odds of getting audited if you prepare your return by hand and the IRS has trouble reading it. The IRS needs to be able to make sense of your tax return, and if it can't tell whether that's a 0 or a 6, or if your return is just too hard to read, it will draw attention.
You don't want any attention drawn to your return. You want it to be one of many millions that smoothly gets processed without question.
Don't be dishonest
Another way to get the IRS's attention is if you try to be sneaky, and stretch the truth on your tax return -- especially if you're self-employed. Be ready to substantiate any claims -- donations to charity, medical expenses, business meals, business-related miles driven, business entertainment costs, etc. -- with receipts or other documentation. If you're claiming a home-office deduction, you'd better have a home office, and one that conforms to the rules, such as being used solely for the business.
Image source: Getty Images.
Don't use a sketchy tax preparer
Finally, think about who is preparing your return, if you have someone else do it. A well-meaning relative who prepares your return might make mistakes that could get you audited. Even a professional preparer can make mistakes -- and worse, unscrupulous ones can be committing fraud with your return in order to lower your taxes, or they can even be stealing from you.
Ultimately, you're the one responsible for your tax return. Don't give up on using a qualified preparer, though, as they should to be much more informed about deductions you might take and strategies you might employ. Good ones can serve you well and reduce your tax bill.
Here's one last bit of good news: Even if you are audited, it's typically not a big deal and won't be too traumatizing. About 70% or more of audits are conducted through the mail, not by requiring you to nervously sit across a desk from an IRS agent. And many of them result in additional money coming your way, too. Audits can seem scary, but they're not usually a problem if you've been honest.
