Tax season is stressful for everyone. You never know when you are going to get that awful letter in the mail that informs you that you are being audited. Preparation is important. You should spend the whole year as if you expect to be audited. Unfortunately, regardless of preparation, some people are more likely to get audited.
The audit selection process is not completely random. If you are an employee that makes the bulk of their income from cash, you are at a higher risk of being audited. Professions such as wait staff, bartenders, or anyone else who earns tips should keep careful records.
Small Business Owners
Small business owners are also more likely to be audited. It is important to keep all records for any deductions and credits you claim. Some tax professionals also suggest that you claim income earned from side-jobs as “other income” on your return instead of filing on Schedule C. This may help keep you off the radar as a Schedule C tends to be an audit magnet.
People Claiming Home Office Deductions
A home office deduction really comes in handy. If you work from home and are self-employed at least part-time, you are allowed to dedicate a room in your house to office space. The deduction amount is determined by the percentage of square footage your office occupies compared to the total square footage of your home. For example, if your home is 2,000 square feet and your office is 400 square feet, you can deduct 20% of your utilities, internet, home phone, and mortgage interest payments (just to name a few) as home office expenses. The IRS does love to audit people who claim this deduction so be honest and be careful!
Those Who Claim $0 and Those Who Claim Over $10 Million in Adjusted Gross Income
According to an article on time.com, in 2014, individuals claiming $0 in adjusted gross income were audited at a rate of 5.26%. That same year, those claiming over $10 million were audited at a rate of 16.22%. To offer some perspective, people earning between $50,000 and $100,000 had a 0.5% chance of being audited.
If you are one of the unfortunate souls that gets “randomly” selected to be audited by the IRS, do not panic. If you have proof to back up your deductions, you have nothing to worry about. In any case, if you are being audited, you should enlist the services of an experienced tax attorney in Florida. Elias Dsouza of Dsouza and Strachan Lawgroup Group has the skills and experience you need to work through your tax issues.