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Afraid of an IRS Audit? It's Not As Bad As You Think


tax audit triggersNo one is claiming that an IRS audit is a cakewalk. But rest assured, a tax audit is probably less likely -- and less gruesome -- than most people fear.

For starters, last year, only about 1% of taxpayers with incomes under $200,000 got audited. (If you're a millionaire, it's a different story -- fully 12% of them were audited, up from 8% in 2010 and 6% in 2009.)

Then there's the timing issue. The IRS isn't allowed to swoop down upon you just any old time. In most cases, the agency has only three years in which to take action -- beginning with the original due date of your return. So for a 2011 tax return that was due on April 15, 2011, the IRS clock runs out on April 15, 2014.

There are some cases in which the clock runs longer: The IRS has six years to take action when they believe that your income was understated by 25% or more. And if they decide that you seem to have filed a fraudulent return... well, then the clock never runs out. There's no time limit.

Good News

Fortunately, it's rather easy to avoid a bad experience. If you don't commit fraud with your return, you don't have to worry about getting nabbed. Plus, it's unlikely that you'll accidentally understate your taxable income significantly if you're filling out your return responsibly. Most of us receive forms from employers and others precisely detailing our income.

That said, even if you are audited, it's often not a big deal. Most audits don't involve going over every bit of your return -- they typically focus on a particular question.

For example, if the IRS sees something unusual on your return, such as charitable donations or other deductions that are significantly higher than your usual sums or higher than others with similar profiles, they might want to question it. Assuming you've been honest on your return, all you have to do is show up (or send your tax pro) with the documentation to support your return, such as receipts. (Very often, you'll just mail the documentation in.)

Finally, be aware that you can reduce your chances of being audited. For example, you can fill out your return very legibly. And be sure to include all your income. Remember those 1099 forms you get in the mail? Well, the IRS gets that same data, and its computers will be expecting your return to match up with it.

For most of taxpayers, there's little need to worry about tax audits. Especially three years after your returns are due.

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Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

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We have been in two business over the last thirty years and have never made as much as anyone working at a fast food place, we have never taken any cash out of the till or cheated anyone. We are old and only stay in business to pay the payment on the land where our business is. That land represents our "retirement fund" and we are tryiing to figure why the IRS wants to audit us when we don't even make a profit. Thanks to Big Business and a more than generous Government (to big banks etc.) our business is struggling more thaqn usual. Lets have a straight tax and fire all of the IRS people, we could save a few hundred a year on the tax preparer also.

May 13 2012 at 4:31 PM Report abuse rate up rate down Reply

What a crock. A audit is the worst situation you will likely be in. The IRS is nasty and if they were held to the same laws that the rest of us are, they would be in jail.
In my situation, they audited me for 4 years back. They pulled out random questions and after 3 months, decided to not give me any deductions. Not interest, not work expenses, nothing. They sent me a bill for more then I made. They added up any transfers in the bank and taxed me on it as income. Even my transfers to a tax account that was already accounted for.
Then after 3 years of audit, and coming out with a fairly clean bill except for a refund that they gave me in 2005 that they decided I didn't earn, they sent my tax papers to 4 seperate tax offices in 4 cities. Each city wanted the credit for the taxes being paid. In other words, they wanted not 35k but 4 times 35k, and that is were we sit now. I paid it to one office, but obviously, they do not talk to the other offices. We are at the taxpayers advocate office now.
The IRS is out of control, they are the most dishonest gang of SS style renegades that you will ever meet.
This statement that says a audit isn't that bad, never went through one. It is one of the worst experiences of your life. I will vote for anyone who proposes a flat tax. ANYONE!
I think our freedom's in the USA are fleeting away. By the way, we figured it cost the IRS about 3x more to do the audit then what they collected. Its a long long process and we are paying for it as well. Don't they work for the American people.
The IRS officer who audited us would be in jail if she had pulled this in the public sector.

February 24 2012 at 1:27 AM Report abuse rate up rate down Reply
You Sexy Beast!!

Mistakes happen.....it's called life. We were audited for our 2006 return because of my husband's business expenses. While we stressed out big time from the time of our notice until the time of the audit, we knew we had done nothing wrong, all our numbers were correct. What I suggest for any one going thru an audit is to BE PREPARED. Have all your paperwork organized, and be prepared to explain why you took deductions, etc. We were in and out within 20 minutes with no additional taxes owed, because we were able to explain our deductions and show proof. It's that simple! The auditor told us he was actually amazed at the people he had seen come in for audits who simply handed him their shoebox full of receipts, no organization whatsoever. He said we were the only people he had seen who did not we any additional taxes. He had allotted an hour to us, and we actually just sat and BS'd about random stuff for a while...cats, the blazers, whatever. They are not out to get you, they just want to be sure you are claiming things correctly and honestly

February 23 2012 at 1:37 AM Report abuse rate up rate down Reply

Took me 3 years to straighten out a tax return that was filed with my social security number. I had to go through Atlanta, ga., Birmingham ALA., and then Philidelphia PA. Instead of getting 2903.00 refund I was told I owed 15,000.00 and the interest and penalties kept piling up. Someone on the west coast filed a return and then I filed my return. It was a pain but I finally got it straighten out. They actually paid me interest on the 2903.00 they owed me for 3 years. My interest was 3 or 4 hundred dollars. Their interest and penalties would have been 7 thousand dollars.

February 22 2012 at 7:35 PM Report abuse rate up rate down Reply
1 reply to joejoegolfn's comment
Henry ptnm

This is called identity theft for somebody using your Social Security number. If you have a computer, you should get Safe Central and Life Lock on it. I have both of these on mine. I get both of them through my internet service.

February 28 2012 at 6:52 AM Report abuse rate up rate down Reply

Never do an audit without an accountant. The IRS will lie to you. Thier mindset is that everyone is hiding something.

February 22 2012 at 2:06 PM Report abuse rate up rate down Reply

if their computures know how much you got and owe ,why must they play games ? why dont they just bill ya?

February 22 2012 at 10:55 AM Report abuse +1 rate up rate down Reply
1 reply to highlanders0017's comment

LOL--we love to get their letters and do EXACTLY as TOLD to do ,as their letter states :date/time/location and to bring this letter with you ...........and that's ALL WE DO and couldn't care anyless about THEM and THEIR BS.

February 22 2012 at 2:55 PM Report abuse rate up rate down Reply

I've been audited twice. The first time the IRS ended up owing me money, and the second time the auditor was a shrew who was convinced I was hiding something because I declared $1 in income (supported by a 1099), a royalty check received from a book I co-authored. She was rude, and obviously bent on hammering me with fines. I preempted her findings by writing directly to the regional director of the IRS filing a complaint against her BEFORE I received her assessment of $100K in fines. The regional director wiped the slate clean. Remember, those directors are political appointees, and if too many complaints are filed they stand to lose their jobs.

February 22 2012 at 9:22 AM Report abuse +3 rate up rate down Reply

I went through two audits in the past'; i came up short ona med entry, but the tax man forgive me ,as iI couldn't locate two prescriptions ttwo got lost..
An other year I was audited for a mistake the preparer had made. He agreed to give me time payments for recovery. . IRS agents are humans also, please remember !

February 22 2012 at 4:27 AM Report abuse rate up rate down Reply

I went through two audits in the past'; i came up short ona med entry, but the tax man forgive me ,as iI couldn't locate two prescriptions ttwo got lost..
An other year I was audited for a mistake the preparer had made. He agreed to give me time payments for recovery.

February 22 2012 at 4:25 AM Report abuse rate up rate down Reply

IRS auditors don't show up on your door step to compliment you on your bookeeping skills. They're looking for money, period.

February 21 2012 at 11:36 PM Report abuse +1 rate up rate down Reply