The end of tax season brings relief to tax professionals and filers alike, but it can be just the beginning of dread for one million more. According to Accounting Today, the Internal Revenue Service will audit more than one million Americans this year. Many people are fearful of an audit if they have a unique tax situation. Are you at risk for an audit in 2018? How will you respond?
Although the number of people audited tends to drop annually, that doesn't diminish the urgency required in response to it. Here are some of the factors that can make it more likely to trigger an audit.
- More than $200,000 in income
As IRS audit resources diminish, it continues to focus on high-income earners because of the potential for more lucrative discrepancies. People who earn more than $200,000 annually earn approximately four times more than the average American household, according to U.S. Census data. Coincidentally, if you find yourself in this category, you are four times more likely to be audited.
2. Large increase in income
According to the New York Times, American household income increased in 2016 and 2017, the first consecutive years since the 2008 recession. While it is a time of good fortune for many people, this can be met with the unfortunate task of an IRS audit.
3. Large charitable deductions
As the old saying goes, no good deed goes unpunished. Indeed, unusually large charitable deductions could trigger an IRS audit. According to Accounting Today, charitable deductions are expected to increase as a factor in audits in coming years as itemized deductions decrease following the enactment of the Tax Cuts and Jobs Act.
4. Owning a business that deals in cash
Many public-facing businesses like bars, restaurants and gas stations deal more in cash than others. The IRS believes that owners of these businesses could be more likely to hide or misreport some income, leading to a higher likelihood of an audit.
Responding to an audit
If you find yourself among the one million Americans audited this year, it is important that you understand how to respond to it. The good news is that an audit does not mean you did something wrong, the IRS may just want clarification of an unusual circumstance. However, your response is crucial.
Outstanding circumstances can make you more likely to be subject to an audit, but the resources available in responding to one remain steadfast. We recommend that you hire a tax attorney to help you through an audit. At Goldburd McCone we have a proven track record of success in helping our clients through the process.