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WHAT ARE YOUR CHANCES OF BEING AUDITED?

Many people often forget that, for the vast majority of taxpayers, the IRS accepts what you say on your tax return. The way that they will or may challenge your tax return is by auditing that return, so people often ask me, what are the odds of getting audited? The IRS issued statistics showing that the audit rate for individuals in 2012 was 1.03%. In other words, one out of every 97 tax returns is audited. The rate in 2011 was 1.11%. In other words, the chances of being audited fell slightly. That is, no doubt, due to the fact that the IRS dropped 6% of their enforcement staff due to budget cuts. This was also a result of many agents being shipped into identity theft cases instead of audits. Of course, the odds of being audited vary depending upon your income. The IRS audited 12.14 % of the tax returns for folks with an income of $2 million or more. That’s one out of every 8 returns.

Business tax returns were audited at the rate of .71%. As with individuals, the bigger companies were audited more often. Corporations with assets of $10 million or more were audited 17.78% of the time. Smaller businesses were only audited 1.12%. The rate for S Corps. was only .48%, and partnerships were only audited .47%. The tax burden falls on the middle class as well. Even though the vast majority of the press says the tax hikes only affect high wage earners, the truth is that lower and middle income taxpayers are also going to get hit with a slightly increased tax rate. That is because of the 2 percentage point drop in the employee’s share of Social Security taxes. Also, because of the so-called Bush tax cuts that were not renewed. The average individual making $50,000 a year will pay an additional $19 a week in payroll tax.