I was recently involved in a car accident. Unfortunately, since it was my first accident, I was scatter-brained and anxious. What I did not realize at the time was that the actions you take immediately after the accident can affect a personal injury case and the outcome of that case. I wanted to find a way to share my experiences and mistakes with other. Since the Internet is so popular, I figured this would be a great way to do so. While you likely aren't planning on being in an accident soon, if you are, hopefully you remember some of the tips I share on this website.
The Internal Revenue Service (IRS) has the responsibility to ensure that Americans of all economic statuses are compliant with their federal tax obligations, which it does through a little tool called an "audit." If that word doesn't strike fear in your heart, it's probably because you figure that most audits are done on the wealthy. After all, wealthy people have more money, their tax records are more complicated, and they have more to lose (or hide).
Once upon a time, that was true. But new information says that it's the "Average Joe" that needs to worry about an audit now.
The wealthy are now being audited less often.
Audit rates have generally been going down in recent years, due to a lack of funding for the time that it takes the IRS to perform them, but not everybody is seeing a positive change. On May 20, the IRS released new information that shows that audit rates on millionaires have dropped considerably--far more than the audit rates for the poorest workers. For example, those taxpayers in the highest income bracket (above $10 million per year) saw their audit rate drop from 14.52% in 2017 to only 6.66% in 2018. Way back in 2015, your odds of getting audited if you were super-rich, however, were about 1 in 3.
The lower your income level, however, the more modest the drop in audit rates. Ultimately, those with an income above $200,000 (which is comfortable by most standards) are being audited 1.56% of the time. Those in the bottom financial brackets, however, are being audited at nearly the same rate--1.41% of the time.
If you're poor, you face a stronger chance of an audit.
Do you have to worry about an audit? Maybe. If you claimed the earned income tax credit, which is available to people with modest taxable wages, your chances of being audited are the nearly the same as those who are wealthy. Because there are vastly more people with low income than high, that means that a disproportionate number of audits are actually occurring against low-earners.
Why is it happening? Budget constraints make it harder for IRS employees to spend a lot of time on an audit, and it's easier to check the tax return of someone who doesn't have much to claim. In addition, the less money that you have, the less likely you are to get legal help right away when an audit happens, which also makes the process much easier for the IRS.
You can reduce the potential risks you face.
One of the best things that you can do to reduce problems from an audit is to use a tax advisory service from the beginning. A tax advisory service can help you wade through the complex tax forms, make sure all your deductions are legitimate and find deductions you may not even realize you are due. In addition, they may be able to represent you if an audit does happen, which will minimize your stress and potential aggravation.