An IRS audit is most U.S. taxpayer’s worst nightmare. But really what are the chances of that happening? Is it true that if you don’t cross your t’s and dot your i’s that a member of the IRS is going to come knocking on your door? There are lots of myths and half-truths floating around when it comes to taxes, the totality of which can be confusing. But, fear not! We are here to help with the truth behind five tax audit myths.
Myth #1: Tax Audits Are Common
Most people don’t realize that only 1.1 percent of individual taxpayers receive an audit letter every year. And, even among those who are audited, very few of them actually have to come face-to-face with a real-life IRS agent. In fact, 75% of audits are conducted entirely by mail. That means that only three in 1000 taxpayers meet or open their doors to an IRS agent. Really high earners, those in the top 1%, have the greatest chances of getting audited, followed by those who don’t report a dime in income. But even if you’re a reasonably high earner bringing in anywhere from $200,000 to $499,999, your chances of being targeted are still less than 2%.
Myth #2: Getting A Letter From The IRS Means Your Getting Audited
A request for more paperwork doesn’t mean you’re being audited, take deep breaths! The IRS may simply be sending you an Automated Adjustment Notice, letting you know that your refund or taxes owed has been adjusted, usually because of a miscalculation or omission of income.
They may also simply be trying to match what they have in their database versus what you personally reported. Either way, letters from the IRS rarely result in a dreaded audit. Sometimes they just need you to provide some additional information. And others, they could even be giving you a bigger refund!
Myth #3: I Can’t Do My Taxes Myself
This is definitely untrue. In fact, the IRS states that returns e-filed using tax software are 20 times more accurate than paper filed tax returns. Today, many online tax software companies like TurboTax are even offering financial protection services if a mistake made with their software ends up costing you something.
Myth #4: If I Get Audited I’ll Owe More Money
Tax audits don’t always work out in favor of the IRS. In fact, there’s a good chance you’ll wind up with money back in your pocket following an audit. Last year, the IRS issued about 40,000 refunds totaling $1.1 billion to taxpayers who were audited. While getting audited by the IRS may not be a good reason to throw a party, it isn’t the worst thing in the world. And, it doesn’t necessarily mean that you owe more money!
Myth #5: I’m More Likely To Get Audited As A Freelancer
Freelancers and self-employed individuals are allowed to deduct certain business expenses from their taxes — an opportunity that salaried employees generally don’t get. It, therefore, may seem like your chances of an audit are higher by virtue of being freelance or self-employed, but that’s not actually the case. If you stick to legitimate business expenses and don’t go overboard with deductions, you’ll reduce your chances of getting picked.
Are you being audited? Call Ayar Law today at (248) 262-3400 for a free, no-obligation consultation.