Donald C. Reutemann CFP®, RPA, AIF®

(518) 688-2223

Tax Read Time: 3 min

What If You Get Audited?

“Audit” is a word that can strike fear into the hearts of taxpayers.

However, the chances of an Internal Revenue Service audit aren’t that high. Between 2010 and 2018, the IRS only audited 0.6% of all individual tax returns.1

And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.

The IRS selects returns for audit using three main methods.2

  • Random Selection. Some returns are chosen at random based on the results of a statistical formula.
  • Information Matching. The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the returns filed by taxpayers. Those that don’t match may be examined further.
  • Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are a number of sound tax practices that may reduce the chances of an audit.

  • Provide Complete Information. Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
  • Avoid Math Errors. When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
  • Match Your Statements. The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
  • Don’t Repeat Mistakes. The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
  • Keep Complete Records. This won’t reduce the chance of an audit, but it potentially may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Audits Have Changed

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2019, the latest year for which data is available, 73.8% were actually conducted through the mail; only 26.2% involved face-to-face meetings.

Source: IRS.gov, 2022

1. IRS.gov, 2022
2. IRS.gov, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

 

Related Content

Will Power

Will Power

Preparing for the eventual distribution of your assets may not sound enticing. But a will puts the power in your hands.

What To Do When Your Income Reaches 7 Figures

What To Do When Your Income Reaches 7 Figures

Preserve your hIgh net worth with these foundational tips.

Long-Term-Care Needs

Long-Term-Care Needs

Determine your potential long-term care needs and how long your current assets might last.

 

Have A Question About This Topic?







Thank you! Oops!

Orchestrating Your Retirement Accounts

Getting the instruments of your retirement to work in concert may go far in realizing the retirement you imagine.

Healthcare Costs in Retirement

Without a solid approach, health care expenses may add up quickly and potentially alter your spending.

Five Most Overlooked Tax Deductions

Five overlooked tax deductions to help manage your tax bill.

View all articles

Annuity Comparison

This calculator compares a hypothetical fixed annuity with an account where the interest is taxed each year.

Paying Off a Credit Card

Enter various payment options and determine how long it may take to pay off a credit card.

Comparing Mortgage Terms

Estimate the total cost in today's dollars of various mortgage alternatives.

View all calculators

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

5 Smart Investing Principles

Principles that can help create a portfolio designed to pursue investment goals.

View all presentations

Saving for College 101

Here’s a crash course on saving for college.

Should You Tap Retirement Savings to Fund College?

There are three things to consider before dipping into retirement savings to pay for college.

The Junk Drawer Approach to Investing

It's easy to let investments accumulate like old receipts in a junk drawer.

View all videos