audits Archives

How to reduce the odds of a tax audit

Maryland residents and Americans across the country have an average odds of 1 in 160 of having their tax returns audited. The number increases to 1 in 23 for those who make over $1 million a year. Those who make less than $200,000 have a lower than average chance of being audited. Regardless of how much a person makes, there are things that he or she can do to reduce the odds of further IRS scrutiny.

The effects of declining IRS audit rates

Many taxpayers in Maryland are perpetually concerned about the potential of an IRS audit, even when they've taken care to file everything correctly. Statistics show that the overall audit rate of the tax agency is continuing to decline and that this decrease is especially notable for high-income individuals and businesses. Less than 1 percent of individual tax returns and those filed by business partnerships are likely to be audited.

How to prepare for an IRS audit

Due to the recent tax reform legislation, companies in Maryland and throughout the country could face a greater IRS audit risk. Some businesses will have had a greater incentive to accelerate deductions in 2017 and defer income to 2018. This could be seen by the IRS as irregular activity. Furthermore, many companies have changed their accounting methods or altered their tax years in anticipation of a lower corporate tax rate and repatriation of earnings.

What to do after hearing from the IRS

When Maryland residents have their tax returns accepted by the IRS, it doesn't mean that there weren't any errors. In a given year, millions of people will receive a notice from the IRS, and mistakes could lead to an individual paying more to the government. However, it is worth noting that a notice is not the same thing as an audit despite the feelings it may stir in a taxpayer.

Causes of IRS audits

The probability that Maryland residents will be audited by the Internal Revenue Service is pretty low. In fact, less than 1 percent of all tax returns will be selected for an audit. However, there are certain types of entries on a return that may compel the IRS to pay closer attention.

What may cause the IRS to issue an audit

Fewer than 1 percent of all tax returns in Maryland and throughout the country are audited by the IRS each year. However, some types of returns are more prone to audits than others. For instance, those who have a high income are more likely to get audited because a taxpayer error will affect more money owed to the government.

How to prepare for a tax audit

Maryland residents may be in the process of collecting information to complete their tax returns. Ideally, an individual will take as many deductions and credits as possible. However, it is also important to understand what happens if the IRS decides to audit a return. In an average year less than 1 percent of returns are selected for further scrutiny. In 2017, there were slightly more than 3,000 criminal cases according to an annual report from the Criminal Investigation Division.

Reducing the odds of an IRS audit

The odds of a Maryland resident being audited are relatively low. According to the IRS, only .7 percent of returns were selected for review in 2015. However, there are steps that one could take to help further reduce the risk of coming under IRS scrutiny. It is important to note that there is no way to eliminate the risk of an audit as some returns are selected randomly for review.

Common reasons for audits

A majority of taxpayers in Maryland and the rest of the country normally do not have to go through an audit. However, there are certain issues on a tax return that may compel the Internal Revenue Service to take a second look.

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