The Internal Revenue Service (IRS) audits approximately 1% of tax returns each year. So which taxpayers are targeted for an audit and why?

During the 2012 IRS budget year, notice how the likelihood of an audit increases with income:

• Audit rate of all individual returns: 1.0%
• Audit rate of individual returns with incomes > $200,000: 3.7%
• Audit rate of individual returns with incomes > $1 million: 12.1%
• Audit rate of small corporate returns (assets < $10 million): 1.1%
• Audit rate of large corporate returns (assets > $ 10 million): 17.8%

In addition to income levels, other factors can lead to an increase in a taxpayer’s risk of being selected for an audit including:

• Failing to claim income from foreign accounts
• Participating in tax protests
• Deducting large charitable contributions, particularly in relation to your income level
• Omitting income reported to the IRS from employers or customers (i.e., unreported W2 or 1099 income)
• Reporting business losses, particularly in 3 or more consecutive years
• Claiming losses on hobby activities
• Writing-off an unusually high amount of unreimbursed employee expenses
• Deducting amounts that appear to be rounded
• Filing returns with mathematical errors or omitted information

The easiest way to avoid an IRS audit is to report all income, retain support for all deductions and credits, and have a reputable tax professional prepare or review your tax return filings.

Contact Flexible Accounting Services of the Triangle today and let us provide you with a free review of your most recent tax return filings. A second opinion is always prudent.