If you're like many Americans, filing your taxes is no easy feat. Once you're finished, you'd love to put the whole matter behind you – but you may still worry about being audited. You're well aware that an audit can cost you time, energy, and hundreds or even thousands of dollars. Wouldn't it be nice to file your taxes with peace of mind?
Unfortunately, there is never any guarantee against an audit. But understanding how the IRS chooses returns to audit can help you avoid this scenario. Since 1.6 million people cheat on their taxes every year, and many more make accidental errors, the IRS conducts random audits to discourage cheating or sloppy returns.
So which returns does the IRS typical target for an audit? Keep in mind people earning between $25,000 and $200,000 annually provoke the least amount of suspicion. Only about one percent of these returns are ever audited. Almost all audits are targeted at people who earn more than $200,000 per year. Some people who claim no adjusted gross income but qualify for certain tax benefits are also audited.
Other than income level, filing a paper return is the biggest factor that triggers mistakes. Paper returns actually carry an error rate of 21 percent! Tax software is programmed to double check for errors, whereas paper returns are subject to human errors in calculation or even handwriting. Sometimes IRS agents even make mistakes transferring your paper return into their system. The IRS knows this, so they tend to target paper returns for audits much more often than they target electronic returns.
Millions of Americans still file paper returns, but going electronic is getting easier and easier every year. You might be surprised by how simple it is to use tax software, but if you aren't computer-inclined, you can have a tax professional do it for you. It's faster to file your tax return electronically, and it's the number one way to discourage an audit.
This material is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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