Next to a really bad health diagnosis, the thing most people fear is an IRS audit. The idea of sitting face to face with an agent who is going through your records with a fine tooth comb is enough to make even the manliest man shiver. The key to defeating this fear is knowledge.
The first thing to understand is the IRS has learned where it can find the most moo per cow if you will. We are, of course, the cows. Instead of spending tons of man hours and money going after a person who makes $25,000 a year, the agency has come to realize it can get far more money from people making $250,000 a year or more.
This is known as the IRS audit principle. The more you make, the more likely it is you will get audited. The current rate for people making less than $100,000 is roughly one percent, but most of these are simply notices in the mail adjusting the figures you reported. If you make more than $100,000, your chance of being audited "jumps" to a whopping 2 percent.. A person making more than a million a year, however, has over a six percent chance of being audited and so on.
There is, of course, an exception to this audit rule. In fact, there are many but let's take a focus on a key one. If you own a business that handles lots of cash, the IRS assumes you will be mighty tempted to under report what you take in. The IRS does not like that. As a result, the audit rates for cash business owners are going to be much higher and can be in the teens in certain areas. Even if you are not audited, the IRS may monitor resource usage to keep an eye on you. For instance, the IRS automatically looks at water usage for laundry mats to determine revenue ranges.
So, does this mean you are off the hook if you make less than $100,000 a year? While your chances of being audited are greatly reduced, there is always a chance you could be that lucky person who gets called in. As a result, you want to keep organized tax records so that you can avoid problems.
The first thing to understand is the IRS has learned where it can find the most moo per cow if you will. We are, of course, the cows. Instead of spending tons of man hours and money going after a person who makes $25,000 a year, the agency has come to realize it can get far more money from people making $250,000 a year or more.
This is known as the IRS audit principle. The more you make, the more likely it is you will get audited. The current rate for people making less than $100,000 is roughly one percent, but most of these are simply notices in the mail adjusting the figures you reported. If you make more than $100,000, your chance of being audited "jumps" to a whopping 2 percent.. A person making more than a million a year, however, has over a six percent chance of being audited and so on.
There is, of course, an exception to this audit rule. In fact, there are many but let's take a focus on a key one. If you own a business that handles lots of cash, the IRS assumes you will be mighty tempted to under report what you take in. The IRS does not like that. As a result, the audit rates for cash business owners are going to be much higher and can be in the teens in certain areas. Even if you are not audited, the IRS may monitor resource usage to keep an eye on you. For instance, the IRS automatically looks at water usage for laundry mats to determine revenue ranges.
So, does this mean you are off the hook if you make less than $100,000 a year? While your chances of being audited are greatly reduced, there is always a chance you could be that lucky person who gets called in. As a result, you want to keep organized tax records so that you can avoid problems.
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