What are the chances of IRS AUDIT if you make under $100K?

Honored by the IRS. So like I said in the state you’re going to be covering what your chances are of being audited by the IRS. Now before we get started, we just want to mention if you are an entrepreneur. You can relate how I am filing my taxes myself with the help of a CPA for a few years now so we know a little bit about this information, but obviously, we are not a certified accountant or CPA. So definitely talk to one of those people before you going to be filing your own taxes, but we’re going to get all this information about what your chances are.

So the three things that determine your chances are going to be your income level, how much money you’re making, the activities on your tax return if you’re just working for a business and you’re not doing anything on the side. You don’t have any Investments or anything like that. Chances are you’re probably not going to be audited if you’re not trying to do anything fishy. And then the last one is going to be unusual items on your tax return. So if you’re only making my 50 Grand a year you have liked. $20,000 in Charity donations. That’s a little fishing to someone who’s only making about 50 Grand so that might get you flagged for the IRS and potentially audit so we’ll go over all of that and we’ll go over what your chances are based on your income level. 

So all this information we are telling you about is from the actual IRS website. I’ll have a link so you can check that out yourself, but the IRS says that last year 150 million individual tax returns were filed in the US now, obviously, there are more people than that but you know, some of them are children, they don’t have to file some people just decide not to file their taxes which everyone should and then there are people who are married so they filed jointly, so obviously it’s not going to be the entire country that’s filing only a hundred and fifty million individual tax returns were filed last year. Now one of those a hundred and fifty million tax returns filed only nine hundred thousand of them were audited. That is .6 % that’s less than 1% of all tax returns that were audited so I know what You’re thinking oh, that’s not a lot. We don’t make a ton of money. But you do because potentially you can increase your chance of being audited if you’re making some mistakes or some red flags. If you put them on your tax returns and greatly increases the chance that you could be in that .6 %. And one thing I want to mention is that generally the IRS will go after people who make more money and the reason for that is because the IRS is not very well funded. 

They don’t have a lot of people working there and they want to spend more resources on Going after people that they potentially can get more money from so let’s use an example to people one guy’s making $50,000 a year and potentially he screwed something up on his tax return or lied. And then there’s another guy who’s making five million a year in the same situation. He lied or screwed something up on his tax return generally speaking. The IRS is going to focus on the 5 million a year guy because potentially, you know, they could look into it and get an extra, you know, fifty hundred or maybe even half a million dollars from that guy making five million dollars as opposed to Guy making 50,000 if they look into it potentially they can get an extra, you know thousand dollars from that guy. That’s not really worth their time to go after that guy in a perfect world. They would go after everyone equally but they don’t. It’s not a perfect world and there are just not enough people working for the IRS to do that. So generally the higher up income you have a greater chance of being audited but again, there are red flags. If you screw this up, you will greatly increase your chance, even if you’re making very little money, but let’s go over the book and break down the different income levels. 

That you have a chance of being audited at so first up if you make under $500,000 under 500,000 you have a .5% chance of being audited on average. So people less than 500,000 less than 1% If you make $500,000 to 1 million, you have a 1% chance of being audited so under 500,000 .5 500,000 to 1 million if one percent if you make 125 million Rose you have a 2.2 percent chance of being audited if you make five to ten million dollars a year, you have a 4.2 percent chance of being audited and if you make over 10 million dollars a year, you have a 6.7 chance of being audited now, obviously, those are just averages for those different income levels. As we said, there are red flags that if you do these things will greatly increase your chance of being audited security and so being audited and we’re going to go over what those are. So for example one example is if you get a Schedule C filing your tax returns if you don’t know what a Schedule C is if you just know, you’re working for a company. That’s all you’re doing. You won’t get a Schedule C. 

But potentially if you’re doing something where you’re an independent contractor, for example, like anyone who works for Uber drives for Uber or Postmates or any of those types of side. Whatever those are independent contractors all those people will get a Schedule C. Also if you’re like a sole proprietor now if you have an LLC that owns a business you’ll file something different. But if you’re running your business as a sole proprietor, you will have a schedule C as well, and having a Schedule C filing that will greatly increase your chances of being audited now. There’s nothing wrong with having a Schedule C. The IRS chooses to look at the schedule C’s more closely because potentially people can Oh those up a lot easier than just filing a tax return from the business that you work for usually people don’t screw those up very much. So they do take a closer look. Look if you do have a schedule see another example is if you have losses on your tax returns, so if you have Capital losses from investments or rental properties, potentially that will get you out of it, but it’s also based on the size of your loss. So if you’re filing a tax return, let’s say you lost. I don’t know about $10,000. 

In the stock market or whatever you sold your stocks which you know, if you didn’t sell the stocks you would have a loss but you sold them at a loss or whatever and you lost like ten thousand dollars. That’s a lot of money. The IRS is going to look more closely at your tax return and see why you lost $10,000 now again based on the size, it’s going to differ if you only have a small loss. Maybe you had a business like a part-time business. You lost like a thousand dollars. If you know, it went under, that’s really not that big a deal to the IRS but if you’re doing like 50-60 70 thousand dollars worth of losses a year. The IRS is going to take a very close look at why you’re losing so much money. So that’s something to get you flag as well and then another example would be high expenses in comparison to your income. So for example, let’s say you make $50,000 a year. 

Let’s say you’re a Salesman for a company and you travel all over in the state of California. So say I travel all of those States of California and I’m trying to sell medical supplies to different hospitals. So I travel all over the state and I make about $50,000 a year and I’m saying that I had about 30,000 dollars. You know based on gas based on food all of this cost is associated with my business and traveling all over that’s going to look really fishy. Why would I have so much in expenses? And obviously, you’re going to have some expenses for travel but if your expenses are incredibly high compared to how much money you’re making that’s going to look really fishy to the IRS and another thing. 

Let’s say you make $100,000 and you decide to donate $50,000 of that to charity now. Maybe that’s true. Maybe they’re lying. It doesn’t really matter again. That’s going to look incredibly fishy to the IRS why you’re donating half your money to charity. Maybe you’re just a really terrible person, but that doesn’t happen very often so they will take a closer look. Look at that. Now if you had $100,000 you’re making a year and you donated $10,000 to a charity a year that doesn’t really look as fishy because it’s just a smaller portion of your actual income. Now one thing that I do want to mention is that when you initially file your tax return. It didn’t usually just go through an electronic system. But it is true that no one is actually looking at your tax return to start because there are 150 million tax returns being filed each year. And the IRS just doesn’t have the manpower to manually look at all of those tax returns. So most of them just go through an electronic system. It stands for the tax return and if it sees anything that it thinks is fishy. Maybe you have way too high expenses. Maybe just, you know, trying to hide something whatever it is. If it sees something that he thinks is fishy it will flag it and send it from 

You and then potentially you’re in big trouble. So as long as you’re not doing something out of the ordinary or you’re just trying to be fishing in general most tax returns will never actually be seen by an actual human being so keep that in mind. Now one thing I do want to talk about last is probably the number one reason why you could potentially be audited if people think they’re smart when they’re doing this. They’re not smart definitely don’t do this, but let’s say, for example, I talked about Amazon on this channel from time to time. Let’s say you have A business on Amazon selling products. It didn’t really make a lot of money. Let’s say you met about five thousand dollars selling products on Amazon this past year and let’s say you have an actual business natural company that you work for and you make about $50,000 a year from that company. So you decide you’re just you’re going to hide that $5,000 you made from Amazon because you have this 50,000 you can send to the IRS and be like, oh, this is your actual income and you can just hide the little side income you made you definitely don’t want to do that. Because any one of these businesses that you’re making money from whether it’s Amazon, whether you’re doing boober on the side and made a couple of Grand driving for Uber all of these companies have to send the information of what they paid you to the IRS. The IRS already has a copy of what you made from Amazon more pertinent for boober or Postmates or any of these side businesses which are doing so if we try to hide that information they will know Something just can’t afford to audit most people.

Leave a Reply

Your email address will not be published. Required fields are marked *