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The Red Flags That Can Trigger A Tax Audit

There is nothing more dreadful for Americans than the possibility of getting audited by the Internal Revenue Service. Luckily, the good thing is that an American’s chance of getting audited by the IRS is pretty slim. In 2014, only less than one percent of the American taxpayers were audited. The audits are expected to decrease even further after budget cuts have prevented those retiring auditors to be replaced.

For them to choose which returns need auditing, the IRS makes use of their Discriminant Function System (DIF) which assigns a specific score for every return then indicates its possibility for having questionable issues. Having a high DIF score means that a return will likely get audited. Even though they have not released more information regarding the scoring system, there are some red flags that can trigger a tax audit.

Being a high earner

High earners are a huge target for the audits. Overall, 0.86% of taxpayers were audited during 2013. This increased to 1.75% for those taxpayers earning $200,000 to $500,000 and increased 3.62% for those taxpayers earning $500,000 to $1 million. The IRS has audited 6.21% of returns for those taxpayers earning bigger than $1 million and 16.22% of returns for those taxpayers earning bigger than $10 million.

Being self-employed

Since it is easier to evade figures in either revenue and expenses side when self-employed, the IRS may have bigger interests in their returns. A business that is showing losses during the past consecutive years also trigger a tax audit.

Having a suspicious tax accountant

Once the IRS has determined a suspicious tax accountant, they may go through some, if not all, returns filed by that tax accountant to check for possible discrepancies.

Filing by hand

Eighty percent of taxpayers make use of the e-file. However, there are still others that do the pen and paper method. When software is used, the potential for mistakes like transposed digits or miscalculations are limited. Filing by hand has a more likely chance of committing mistakes and one that is noticeable by the IRS.

Conclusion

Even though there is lesser chance of audits in America, when it happens especially if one is more at risk of getting audited, it can result to an emotional roller coaster. It is helpful to secure an audit shield to avoid the costs that may results from this.

 

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