Welcome to LIFE IN THE TAX LANE!!
The big question in today’s Blog is……………
or getting COVID-19?
I will take the audit because I’ve been there many times before and, frankly, nearly every time I have come out with my fist in the air in VICTORY! And COVID-19? Way too many unknowns for me to jump at that option.
Next question: What do I have the highest chance of getting, an IRS audit, or COVID-19?
Well, for COVID-19, there are thousands of different answers to that question and the answer may very well depend upon the political persuasion of the person answering it.
Either way, audit or Coronavirus, you're going to be miserable, like this fine taxpayer.
Chance of an IRS audit? Let us look at the data released by the IRS for audits during 2019.
The exam rate in 2019 was .4%. That is about a one in 250 chance of being audited. Slim.
Certain taxpayers did get more scrutiny, however.
1. Sole proprietors. Up to 1.6% of taxpayers who filed a Schedule C and reported over $25,000 were audited.
2. Upper-class. Those that earned between $200,000 and $1,000,000 had an audit rate of 1%. Those that made over $1,000,000 had an audit rate of 3.2%.
And for Corporations, you ask? C Corporation’s rate was .7%. Partnerships and S Corporation’s rate was .2%.
And the big question, who got busted and ended up owning taxes as a result of the audit? 59% of Partnerships were assessed additional tax; 69% of S Corporations were assessed additional tax; 70% of C Corporations were assessed additional tax. Individuals, on the other hand, were assessed additional tax 91% of the time.
Interestingly, the IRS could not figure out why that was. But the answer is obvious. Most all Corporations and Partnerships engage a competent CPA to handle their taxes. Many small individuals, including Sole Proprietors, either do their taxes themselves or try to rely on a non-CPA tax preparer. The IRS obviously will find less errors in a return prepared by a CPA than by anyone else. (How is that for an awesome self-plug?)
Of course, those are pictures of Hanna and me. We actually are models when we are not preparing taxes.
If you think being audited is fun and want to be audited, here is a list of the five top reasons that folks get audited.
1. Make over $1,000,000 a year.
2. Fail to report all of your income.
3. Take excessive deductions.
4. Be self-employed and report income levels that are inconsistent with other similar businesses.
5. Use round numbers on your tax return. Yes, like that "5,000 miles even" mileage number some folks report every year.
BE SAFE!! DO NOT DO THOSE FIVE THINGS!
See you next time on LIFE IN THE TAX LANE!!