Many Factors Can Affect Tax Audit Chances

Part of mature thinking is being able to weigh the odds.

This doesn’t mean gambling. It means knowing the likelihood that something will happen and tailoring actions accordingly to attain specific goals.

In this post, we will consider tax audits as an example of this. It makes sense for a taxpayer to know how likely it is that an audit might occur. Knowing what types of things tend to increase audit risk is important information that can lead to more strategic decisions about tax compliance.

Overall, the percentage of taxpayers who are audited is only about 1 percent.

But the chances of an audit rise when certain factors are present.

For example, it is widely known in the tax community that audit chances tend to rise along with income. When you think about it, this isn’t surprising. After all, the IRS is looking for revenue – and there is likely more of it to be gained on higher-income returns.

It is also widely known that large tax deductions for charitable donations can be a red flag for a potential audit. Taxpayers should be sure to follow IRS guidelines on the documentation of those gifts.

The same is true of non-reimbursable job expenses. Taking a deduction for those expenses must be handled with care.

Finally, as we noted in our September 27 post, it is also commonly accepted that amended tax returns can make an IRS tax audit more likely.

Of course, there are many other factors besides those we have discussed here that affect the likelihood of a tax audit. The point is that there are certain factors that can increase the chances that an audit will occur.

Source: Chicago Tribune, “Familiy finances: money-saving strategies from the pros,”  Feb. 2, 2014