Like old wives tales, IRS audit myths, often with little basis in reality, have been handed down through generations of American taxpayers.
IRS Audit Myths Debunked
Since IRS audits are very rare, most honest taxpayers are already in the clear without knowing it. Only slightly more than one percent of individual taxpayers receive an audit letter each year. Still, IRS audit myths are passed along like a game of telephone every year.
To put these old wives tales to rest, our list debunks the big IRS audit myths one by one.
Myth #1: The IRS audits only the wealthiest Americans
Fact: Individual returns are randomly selected for audits by the IRS.
However, there is some truth to this IRS audit myth. Those with incomes of less than $25,000 have a less than one percent chance of an IRS audit. For those taxpayers with income greater than $100,000, the chance of audit doubles to less than two percent.
Myth #2: Once I’ve received my refund check, I’m in the clear.
Fact: Even though the IRS sent you a refund check, this does not necessarily mean the government agency has reviewed your return.
Myth #3: I can’t be audited, because all my income is cash.
Fact: Today, the IRS has other ways to track if you or your business under-reports cash income.
A big house, an expensive car and a boat on a $30,000-a-year reported salary might be cause for an audit even if it’s based on cash income.
Myth #4: I hired an accountant. I can’t possibly be audited.
Fact: No returns are audit-proof regardless of who prepares them.
While it pays to have a professionally filed tax return, this by no mean guarantees you are immune from an audit.
Myth #5: If I owe tax money, the IRS is coming knocking tomorrow.
Fact: The IRS may never forget a debt, but you have time to correct your mistake.
If you have raised a red flag with the IRS, you might not hear from them for a year or two or longer. With personal shortages at the IRS that window is increasing today.
At DeFreitas & Minsky, we specialize in all aspects of tax returns on Long Island. If you have questions about IRS audits or would like any other assistance, don’t hesitate to call DeFreitas & Minsky Certified Public Accountants at 516.746.6322 for more information.