I focus my practice on tax resolution, representing taxpayers in Colorado, Florida, and across the United States. Many taxpayers worry about the possibility of being audited by the IRS, but the likelihood of an audit is relatively low (at this point in time), although that is expected to increase with the additional hirings the IRS is making.
Several factors can increase your chances of being audited, including:
- High Income: Taxpayers with high incomes are more likely to be audited than those with lower incomes.
- Self-Employment: Self-employed individuals are more likely to be audited than those who are employed by a company, especially if you are Schedule C filer. In my experience, Schedule C landscapers, contractors and real estate agents fall into this category. S corporations have been historically audited at a lower percentage, but audits are expected to increase due to the vast majority of shareholders not taking reasonable W2 compensation.
- Claiming Large Deductions: Taxpayers who claim large deductions, especially for charitable contributions, are more likely to be audited. Contributions as a percentage of AGI is also a factor.
- Filing Late: Taxpayers who file their tax returns late (past extended due dates) are more likely to be audited.
- Business Expenses: Taxpayers who claim large business expenses, especially for travel and entertainment, and auto, are more likely to be audited.
While the chances of being audited are relatively low at this point in time, it is important to file your tax returns accurately and on time (including extended due dates). If you are audited, it is important to respond promptly and provide all requested documentation. If you are unsure about how to file your taxes or have any concerns about an audit, it is best to seek the advice of a tax professional.