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Common reasons a tax audit may occur

On Behalf of | Feb 20, 2018 | Tax Audits

Individual taxpayers in Georgia and around the country are at a relatively low risk of being audited by the IRS. Overall, fewer than 1 percent of federal income tax returns are scrutinized further by the government. However, a person’s exact audit risk may depend on several factors such as his or her income, deductions taken and forms included in a return. For instance, those who had an adjusted gross income between $500,000 and $999,999 were audited at a rate of 3.62 percent in 2016.

In some cases, deductions are made in two different places on a tax return or are not accounted for properly. For instance, a person may take a deduction on a rental property when it should be capitalized over several years instead. As a general rule, the IRS knows how much a person gives to charity or spends on medical bills in a given year. If deductions are much higher than average, it may result in an audit.

Business owners should be careful to account for expenses if they are claiming the Earned Income Tax Credit. The IRS knows that Schedule C forms may be manipulated by business owners to reduce their taxable income. Failing to report some or all income earned in a given year may also result in a problem.

While the prospect of a tax audit may be overwhelming, receiving one doesn’t necessarily mean a taxpayer did anything wrong. The audit will generally state why it was generated and what the government is looking for. In many cases, the audit will be done by mail and may be concluded by verifying an expense or eligibility for a deduction. An attorney can often handle an audit on behalf of a client.