A is for Anxiety and Audits

Couple thoughtfully calculating bills on laptop in living room

There are many types of Audits and each of them tends to generate fear and anxiety in the individual or company being audited, even when careful practice has been implemented. Why the anxiety? One reason may be our perfectionism leading us to believe mistakes are something to be avoided at all cost.

Let’s talk about one of the most intimidating audits…an IRS audit. This audit can affect each and every taxpayer without warning. The good news is these audits are becoming scarce, less than 1% of taxpayers endured an audit last year, according to IRS figures. This seems largely due to the underfunding of the IRS agency, with less money to spend the audit rate has dropped for taxpayers who earn less than $200,000 and risen for those earning $200,000 to $1 million.

It may not be fair to target a certain income level, but it seems as though targeting a specific bracket may be a result of reduced funding for the agency. We all have a responsibility as citizen to pay our taxes but there is no need to be a target for an IRS audit. So consider avoiding the following situations:

  • Standing out from the crowd – the IRS uses a program that compares individual returns with various norms.
  • Missing documentation.
  • Hiring a tax preparer who has a blemished record with the IRS
  • Reporting a hefty-deduction for charitable donations.
  • Large loss in one area that offsets high profits in others; an IRS agent may question its need for deferral, which lessens its value.

If you do get audited, it is important to stay calm, don’t panic as it may be a simple math error. If however, a serious infraction has been flagged it would be in your best interest to hire the services of a professional tax attorney or CPA to represent you during the audit.

Answers from AZ

About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™).If you have comments on this post contact Ann Zuraw

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