IRS shows a simple way to avoid income tax audit
by
Dec 28th 2009 1:30PM
Updated Dec 28th 2009 2:37PM
The tax gods smiled on me when they made me the younger brother of a CPA -- a guy who saved my butt countless times back in the day when I didn't know a tax return from toilet paper. Thus I've always had the advantage of instant, free tax advice when I need it.Yet no matter how many times I asked Brother Joe about beating the IRS audit system, he was always pretty cautious, and 100 percent truthful. "There's no fool-proof way to do it," he'd tell me.
But now comes news from the most unlikely of sources -- the IRS itself -- that your chances of being audited are 1 in 100 if you follow one simple rule: Show an income under $200,000.
IRS enforcement numbers released last Tuesday show that returns under that amount have a 1 percent chance of getting audited, according to a brief on msnbc.com. Show an income of $200,000 and above, and your chances of an audit nearly triple, to about 3 percent.
And if you're Joe or Jane Millionaire, then prepare to follow the rock 'n' roll advice of John Fogerty and make the house look like a rummage sale. Your audit chances jump to more than 6 percent if your returns show earnings of $1 million or more.
You may wonder, as I do, how else you can avoid an audit. I know, I know: I shouldn't expect the IRS to hand over its entire playbook. But according to the Internet site WorldWideWeb Tax, certain characteristics could likely raise a red flag with auditors. These include:
- You have large amounts of itemized deductions on your tax return that exceed IRS targets.
- You claim tax shelter investment losses on your tax return.
- You have complex investment or business expenses on your tax return.
- You own or work in a business which receives cash and/or tips in the ordinary course of business.
- Your business expenses are large in relation to your income on your tax return.
- You have rental expenses on your tax return.
- A prior IRS audit resulted in a tax deficiency.
- You have complex tax transactions without explanations on your tax return.
- You are a shareholder or partner in an audited partnership or corporation.
- You claim large cash contributions to charities in relation to your income on your tax return.
- An informant has given information to the IRS.
If you're at all like me, chances are none of these areas should cause you any concern. (Geez, I don't even know what a tax shelter investment loss is.) Plus, if I do get audited, I can always call Brother Joe.
But talk about news some of us can use. Like: "Girls Gone Wild" founder Joe Francis, who claims the IRS is out to get him.
