The tax year 2018 audit stats are out and the IRS has revealed that fewer taxpayers were selected for audits than in prior years. That doesn’t really matter though if you are one of the unlucky few! Also, things like not paying household employment taxes increase your risk of an audit. Let’s take a look at some numbers and strategies everyone can use.
The Numbers
2018 saw the lowest percentage of audits since 2002 with just 0.59% of individual taxpayers getting audited, down from 0.62% in 2017.
Higher earners saw a greater chance of being audited but it was still down from 2017 – 2.21% of people with AGIs of $1m to $5m were audited, down from 3.52% in 2017. 6.66% of people with AGIs over $10m were audited down from 14.52% in 2017.
Audit Survival Strategies
Assume the best, prepare for the worst. This saying is helpful in many ways but applied here it means keep track of anything you report on your taxes: receipts, donations, invoices, etc.
Just because you get selected for an audit doesn’t mean you did anything wrong. It could just mean there was something different about your return and you got selected for a closer look. Having the supporting documentation will answer any questions the IRS has quickly and easily.
You may want to be extra prepared if you have any dealings with someone who was previously audited, like a business partner or investor. If you own a business you may well want to just proactively have your financials audited, it can provide more benefits than just keeping the IRS at bay.
Keep those records mentioned above for at least 5 years; it is common for an audit to happen more than a year after the filing.
Hire a Professional
If you do get audited and aren’t using a tax professional already, it might make sense to engage the service of one for the audit. Tax professionals know what the IRS is looking for and how to effectively argue with them. They can help you prepare better and reduce the time the audit takes, both factors usually make it worth hiring a professional.