The IRS recently announced that it audited less than 1 percent of individual tax returns in 2014. Due to a continued lack of funding, the audit rate in 2015 is expected to be even lower.
More common than the audit is the dreaded IRS letter. E-filing of returns allows the IRS to compare amounts in its system from banks, brokerages and other 1099 providers with the information included in your return quickly and somewhat accurately. That is why we often request original documents from you so we can be sure that the payor and amounts agree exactly to what the IRS will receive, reducing the chances of incorrect notices.
Most IRS audits are triggered by specific items in your return such as:
► Large amounts of itemized deductions. Mortgage interest is a particular favorite due to the strict limits on deductibility of interest.
► A sole proprietorship or single member LLC reported on Schedule C (the IRS is convinced that the "tax gap" is largest among sole proprietors).
► Large losses on real estate or rental property. It's difficult to deduct such losses as they are generally passive.
► Deducting losses that look like hobby losses.
► Large amounts of meals and entertainment always cause a raised eyebrow.
If you have any questions about your audit risk, please feel free to contact us.