If you earn more than $100,000 your chances of an IRS audit significantly increase as income rises.  While it is true that budgetary cutbacks have impacted the number of audits conducted, the IRS must still generate the same volume of revenue for the US Treasury.  The IRS’ solution: target high wage earners, those in excess of $100,000 as there is a greater opportunity to recover additional taxes.

The IRS believes this target pool represents those who are the most likely to attempt to shield income from taxation, and to hide or under-report income and assets.  This has been the case in recent IRS FBAR audits as well as business owner review – especially those with S-Corporation entities.  The IRS computers are identifying those returns that fall outside of the statistical bell curve for many standard items including:

  • Charitable contributions
  • Expense deductions
  • Form 2016 business expenses
  • Home office deductions
  • Losses in consecutive years

The IRS audits are also cracking down on what the IRS considers to be “hobbies” versus actual business ventures.  Many US taxpayers claim business deductions and losses for activities which are claimed to be related to a business.  The IRS has recently published guidelines clarifying the line between a business and a “hobby” based upon the likelihood of profit, the fundamental nature of the business itself and its viability over a span of years.  If you are consistently claiming deductions or losses for a side activity or your business loses money in consecutive year prepare to be placed under the microscope of the IRS.

Another tactic the agency is deploying is known as an “information audit.”  The IRS sends the taxpayer a letter requesting additional documentation or information concerning calculations.  This should be a huge red flag for any US taxpayer.  Most taxpayers provide far too much information in response to these requests, which in turn is used against the taxpayer to justify an expanded audit.

If you earn more than $100,000 your chances of an IRS audit significantly increase.  If you are contacted by the IRS for additional information, clarification regarding a deduction or expense or questions regarding accounting principles or procedure we invite you to contact Allen Barron immediately for a free consultation at 866-631-3470.  It is not in your interest to communicate directly with the IRS as the information you provide is likely to be used against you.

Contact an Estate Planning, Business Law Or Tax Attorney Today

To set up a free, no-obligation consultation with one of our knowledgeable San Diego based estate planning, business and tax lawyers, or learn more about our tax preparation, accounting and business advisory services call us at 866-631-3470 or contact us.