Are you concerned about an IRS audit? Thanks to government cut backs you may have less to worry about than you think. The IRS’s budget has been slashed $1 billion since 2010 and over that time they’ve let 10,000 workers go. ? In 2014 alone funding for the IRS is down over $500 million compared to 2013.
That may be bad news for the bureaucrats but good news for taxpayers. According to the IRS, audits are down 5% to levels not seen since 2008. And most of the audits that do take place are taking place by mail (to save even more money). These audits by mail are far less intrusive because they typically focus on line items rather than your entire tax return.
This is not to say that there isn’t anybody left in the hen house to watch the chickens. If you haul in the big bucks, the IRS still has you in their sites. Almost one in ten people who earned between $1 million and $5 million last year were audited. And if you earn more than that, your chances of getting a visit from the IRS go up astronomically. One in four people who earn over $10 million are audited each year.
But don’t let your guard down just because you don’t earn millions and fly around in Lear jets. You can still get audited pretty easily. That’s right. If you are a business owner, claim a home office deduction, claim the Earned Income Tax Credit or don’t report a foreign bank account, your odds of being audited go up fast.
Bottom line? Be honest. Take advantage of tax reduction strategies but always report accurately. Don’t get sloppy with your return friend. And whatever you do, don’t wait to start thinking about it at tax time. You have to get your house in order now before this becomes a problem.
If you are unlucky enough to fall under the IRS’s microscope you could be in for a world of pain – even if you haven’t done anything wrong. That’s why I’m a big fan of being scrupulously transparent with my tax return.
Are you changing the way you prepare your tax return now that you know the IRS is shorthanded?