There is a lot of talk about an increased risk of audits since the Inflation Reduction Act has provided additional funding to the IRS for the express purpose of going after perceived tax cheats. However, Terrance Selb from American Tax Solutions isn’t concerned about an increased risk of audits for several reasons. He notes that it will take time for the IRS to hire additional agents and train them. Furthermore, he says, the IRS is mainly focusing on those who earn more than $400,000 a year. What’s more, Selb points out that there are tried and proven ways to significantly lower the odds of being audited even if one does earn a high annual salary.
Honesty is always the best policy, Terrance Selb emphasizes. All taxable income should be reported, be it earned or unearned. This includes money earned “off the books” by doing small jobs for a friend, selling items on eBay or Etsy, and income earned from tips. It also includes the value of a service obtained by bartering, money earned from buying and selling digital currencies, and royalties. Even Social Security income is taxable in some cases.
Moreover, it’s important to keep receipts and other paperwork showing the validity of any claimed tax deductions. This is especially important if your deductions/losses are high in comparison to your reported income, as the IRS scrutinizes such instances carefully. Selb also explains that the IRS pays close attention to small business owners who run businesses in which people tend to pay in cash rather than by card; such businesses include barber shops, restaurants, taxis, bars, and car washes. Hiring a tax preparer rather than attempting to prepare taxes on one’s own can be the best option for many people who are at high risk of an audit, as a qualified, experienced expert in this field will be able to ensure that one’s tax forms are accurate, and all needed paperwork is included in the form. Some tax prep firms also offer audit protection and this is a service one may want to consider if he or she is concerned about an audit. The name is a bit misleading, as audit protection does not protect one from an audit; however, it does provide automatic, professional help from a tax preparer should the IRS decide to audit the return. What’s more, it can be cheaper than having to hire an attorney such as himself in order to stop wage garnishment, a lean, or asset seizures.
Terrance Selb says that a drastic increase in audits is unlikely this year; however, he does warn individuals to track their finances with care to ensure there are no omissions or mistakes that could increase one’s odds of being audited. One should never attempt to pay less than he or she owes by either claiming too many deductions or failing to report all one’s income. Following his advice can drastically lower one’s odds of being audited even as the IRS takes measures to pursue those that the agency perceives aren’t paying their fair share in taxes.
