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What Triggers a Tax Audit?

  • 13 July 2016
  • Author: Alexander Carr
  • Number of views: 2338
What Triggers a Tax Audit?

You may have heard that IRS audits of individuals have hit an 11-year low. This past year, the IRS has been auditing fewer than 1 in 100 individual taxpayers. But don’t allow those statistics to embolden you. Thousands of taxpayers still get audited each year. If you’re a high-earner, with $500,000 to $1 million earned annually, your chances of an audit jump to more than 4 percent. The picture changes again when it comes to business audits. Corporations tend to be audited more often (as much as 12 percent of large corporations).

So what triggers a tax audit? For individuals and small business owners, aside from earning a high salary, the following IRS triggers are common: 

  • Taking large charitable or business deductions
  • Filing an estate tax return
  • Failing to report all your income
  • Taking losses on rental properties
  • Breaking the rules on foreign accounts
  • Taking early payout from a retirement account

Additional business tax triggers may include:

  • Rounding numbers up or down
  • Claiming business losses year after year
  • Taking excessive deductions for business entertainment
  • Claiming large business vehicle and travel expense deductions

Keep in mind that the IRS is not the only entity that may audit your taxes. Your state’s comptroller of public accounts may be interested in auditing you from another angle: Examining your state and local sales and use tax payment history. The Texas State Comptroller’s Office is forthcoming about the different reasons they may decide to audit a business. Some may surprise you, including:

  • Prior productive audits of $10,000 or more
  • Leads from newspaper articles
  • Audits of related spin-off companies
  • Leads from the Associated Insurance Group
  • Leads from bankruptcy action
  • Other taxpayer complaints or audits

The best way to avoid being targeted for an audit? Hire a reputable CPA, stay organized and up-to-date on tax issues, and operate under the assumption that this year could be your year for an audit. For specific questions, feel free to contact us

Image Copyright: andreypopov / 123RF Stock Photo

Categories: Blog, General
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