Tax Read Time: 3 min

What If You Get Audited?

“Audit” is a word that can strike fear into the hearts of taxpayers.

However, the chances of an Internal Revenue Service audit aren’t that high. Between 2010 and 2018, the IRS only audited 0.6% of all individual tax returns.1

And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.

The IRS selects returns for audit using three main methods.2

  • Random Selection. Some returns are chosen at random based on the results of a statistical formula.
  • Information Matching. The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the returns filed by taxpayers. Those that don’t match may be examined further.
  • Related Examinations. Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are a number of sound tax practices that may reduce the chances of an audit.

  • Provide Complete Information. Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
  • Avoid Math Errors. When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
  • Match Your Statements. The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
  • Don’t Repeat Mistakes. The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
  • Keep Complete Records. This won’t reduce the chance of an audit, but it potentially may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Audits Have Changed

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2019, the latest year for which data is available, 73.8% were actually conducted through the mail; only 26.2% involved face-to-face meetings.

Source: IRS.gov, 2022

1. IRS.gov, 2022
2. IRS.gov, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

The Five Basics of Financial Literacy

The Five Basics of Financial Literacy

How literate are you when it comes to your finances? Brush up with these five basics.

The Big Picture–Little Focus on Big Issues

The Big Picture–Little Focus on Big Issues

If the stock market is hitting record highs, why aren’t money managers feeling the love?

Teen Drinking and Your Liability

Teen Drinking and Your Liability

Drinking may be a “rite of passage” for teens, but when it occurs in your home you may be held responsible for their actions.

 

Have A Question About This Topic?







Thank you! Oops!

The 12 Steps to Living Confidently: The Small Business Dream

Starting a small business? First, take care of the basics. 5 essential steps to help position your new business for success.

5 Benefits of Working in Retirement

Here are 5 reason why you may consider working through retirement.

Retirement Is a Beginning

Key questions to answer when you are considering retirement.

View all articles

Should I Buy or Lease an Auto?

This calculator compares the financial impact of leasing versus buying an automobile.

Social Security Taxes

Estimate how much of your Social Security benefit may be considered taxable.

Assess Your Life Insurance Needs

This calculator estimates how much life insurance you would need to meet your family's needs if you were to die prematurely.

View all calculators

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

An Inside Look at Retirement Living

A number of questions and concerns need to be addressed to help you better prepare for retirement living.

View all presentations

It Was the Best of Times, It Was the Worst of Times

All about how missing the best market days (or the worst!) might affect your portfolio.

A Bucket Plan to Go with Your Bucket List

A bucket plan can help you be better prepared for a comfortable retirement.

Video: A Time to be Thankful

This Thanksgiving, replace internal fears with external gratitude.

View all videos