What Are My Chances of Getting Audited?

When people hear the words, “audit”, some shrek in fear. Don’t fear, audit rates have declined over the past few years but have started to increase for those with self-employment income. The IRS have caught on to those trying to push what qualifies as business expenses.

Realistically, your chance of having your personal tax return being audited is close to .06%, or 1 in 150. With the millions of tax payers, the chances are probably a lot lower than that.

Experts argue that the best way to minimize your chances of being audited by the IRS is to file your taxes on time and use some sort of software to double check your math. A CPA once told me to simply ask yourself the question, “Can you talk about your expense with a straight face?”, and if you can’t, then you probably shouldn’t think about putting the expense down.

Make sure you keep all paper records for at least 6 years even though the IRS only has 3 years to audit a return, but if they find out that you underreported your gross income by more than 25 percent, then some states have a longer statue of limitations.

Another sound advice is to make sure your income justifies your expenses. In other words, if you made $10,000 and try to report $50,000 in business expenses, your tax return may be flagged. Note that if these are actual documented expenses, by all means, do not cheat yourself out of those business expense deductions. However, if the $50,000 was spent on a family vacation to Europe, it may be a tough sell.

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