According to the January 30, 2008 issue of The Wall Street Journal, the IRS has been feeling some pressure to put additional taxpayer money in Uncle Sam’s pockets. The Service has responded by increasing the number of audits of those who make more than $100,000 per year.
In particular, with regard to tax returns filed in 2007, the IRS increased audits of those making at least $100,000 per year by 14%. Those making more than $200,000 saw a 29% increase in audits, and those with at least $1 million in income saw an 89% jump. Even more audits are on the way for these demographics' 2008 filings. (Herman, T., “High Earners Face Surge in Tax Audits,” The Wall Street Journal, January 30, 2008, Page D1.)
If you are self-employed (e.g., you have an S Corp or are a sole proprietor) and you earn more than $100,000 year, you may want to speak with your accountant about dealing strategically with the increased audit risk.
In addition, The Journal’s Wealth Report Blog suggests three other things you should do as you look at your 2007 taxes over the next few months:
(1) Don’t get overly creative with your tax accounting. Keeping things simple should trigger fewer automatic “audit-flags” with the IRS.
(2) Try to be consistent with what you did last year, especially with regard to deductions. The software the IRS uses to determine who to audit looks for major variations from year-to-year.
(3) Stick with what the forms tell you. Don’t take a “different position” with respect to a 1099 or K-1 that you receive.
Good luck as you prepare and file your 2007 taxes!
IRS Circular 230 Disclosure: Pursuant to recently-enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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