Whenever a letter arrives from the IRS what goes through your mind first? Audit, right? No one wants to see that request for documents.
According to a recent CNBC story, The IRS closed over 450,000 individual audits in Fiscal 2020, roughly .29% of those filing. Your best bet, therefore is to first, not to panic. Most people do not get audited. So who does?
Typically those with a lot of write offs.
“Some people play the audit lottery, meaning they’ll do whatever they want, and know that the chances of getting caught are slim,” John Apisa, a CPA told CNBC. “That’s not a good philosophy to have, though.”
Here is what the IRS looks for:
- Trying to claim too many credits or deductions in relation to your income.
The IRS uses software to run your income against your deductions – the computer literally snitches on you and flags a potential audit.
The system estimates the appropriate range for each deduction or credit by income level, and if write-offs are outside that range, scores may increase, he said.
- This may seem obvious but a red flag is raised if your tax forms don’t match your reported income filed by your employer and elsewhere. Remember, you aren’t the only one submitting information about you.
- In this day of remote work the IRS may not be so keen to question this but home office and auto deductions are a red flag, too.
- Finally, don’t submit information round numbers.
Finally, be sure to keep all of your receipts … the burden of proof is on you so be prepared. For additional help, call Palazzo & Company at (866) 272-9224 or see at palazzotax.com.