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Don’t Tempt the Taxman to Choose You for an Audit


There are a lot of benefits to being ultra wealthy. High net worth individuals get to experience so many things in life that most people can only dream of. The wealthy also enjoy an extravagant lifestyle that other people only get to watch in movies or on TV. There’s no question that the wealthy get to enjoy some very nice luxuries that others will never experience. However, there are some downsides to being ultra-wealthy, especially as it pertains to taxes.

Wealthy Targeted by the IRS

It seems that when it comes to taxes, lawmaker never run out of reasons to try and tax the wealthy more. Likewise, did you know that the more money you make, the more likely you are going to be audited by the IRS? It’s true. While anyone is subject to being chosen for an audit by the IRS, over the last 15 years the total number of audits has gone down and the focus has grown more on the rich. For example, in 2013 the IRS performed 1.4 million audits on taxpayers. Guess which income bracket saw most of the audits?

  • Income less than $200,000 – 0.88 percent were audited
  • Income between $200,000 – $1 million – 3.26 percent were audited
  • Income greater than $1 million – 11 percent were audited

The numbers don’t lie. The more money you make, the better your chance of joining the IRS’s audit club.

Other Common Audit Targets

So it turns out that being wealthy is not good when it comes to audits, but there are other factors that can make you more likely to be chosen for an audit. One of those factors is the IRS’s computer scoring system, which is known as the Discriminant Information Function (DIF). This system looks at tax returns based on exemptions deductions and credits in each of the given income brackets compared to the norms for those brackets. If those factors don’t fit the norms for your income bracket then you could have a greater chance of being selected for an audit.

Beware of Your Deductions

One of the biggest red flags that gets the IRS’s attention is abnormal deductions. When your deductions don’t fit your income, like for example you report a high mortgage interest deduction but your income is very low, that could set off an alarm. Other deductions that get the IRS’s attention include business loss on a Schedule C, large casualty losses, and noncash charitable deductions.

Be Honest and Don’t Be Afraid

However, if you have legitimate deductions and you are being completely honest in your return, then don’t cheat yourself out of your full refund because you’re afraid you might get chosen for an audit. If you file an honest return, then you have nothing to be afraid of. Even if the IRS does choose to audit you, as long as you have proof of your claims, then you will have nothing to worry about.

Helping You Get a Full Refund

Finding out you have been chosen for an audit is one of the scariest situations anyone can go through, but it doesn’t have to be. If you have been chosen for an audit then contact GROCO for help/ Likewise, if you need help with your tax return then get ahold of us as soon as you can. We will help you prepare an honest and accurate return and help you get as much money back as legally possible. Call us at 1-877-CPA_2006 for more information, or contact us online.

The post Don’t Tempt the Taxman to Choose You for an Audit first appeared on Advisors to the Ultra-Affluent – Groco.



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