Is Your Income Over $400K? Brace for More Audits as IRS Lowers Audit Target
The IRS is taking a significant step to focus its auditing efforts on higher-income earners. This change aims to improve tax compliance and ensure that the wealthiest individuals pay their fair share.
Here's what you need to know about this shift and how it might impact you.
Understanding the Change
In May 2024, the IRS announced increasing audits on individuals with annual incomes exceeding $400,000. This adjustment reflects a strategic shift to allocate resources toward higher-risk returns, potentially leading to increased revenue collection and greater tax fairness.
Key Highlights
Increased Focus on High-Income Earners: The IRS directs more auditing resources toward individuals earning over $400,000 annually.
Reduced Audits for Lower Incomes: This change also means fewer audits for those earning less, as the IRS reallocates its efforts.
Enhanced Use of Technology: The IRS plans to leverage advanced data analytics and machine learning to identify audit targets more accurately.
Policy Motivation: The shift aligns with broader governmental efforts to address income inequality and enhance revenue collection.
6 Actions to Take
As a potential target for the IRS, here are some things you need to know and actions you can take to prepare for an audit.
Higher Audit Probability: If your income exceeds $400,000, you are more likely to be audited. Ensure your tax returns are accurate and well-documented.
Preparation is Key: Gather and organize relevant documents, including receipts, invoices, bank statements, business expenses, investment documents, and financial statements. This preparation will be crucial if you are selected for an audit.
Review Past Returns: Examine previous tax returns to ensure they are accurate. Work with our team to correct any mistakes proactively. If you discover significant errors in past returns, consider filing an amended return before the IRS contacts you.
Get Professional Help: Work with us to review your returns and provide guidance. We can help ensure compliance and reduce the risk of errors.
Stay Informed: Keep updated with IRS guidelines and any further changes in audit policies. Knowledge is your first line of defense against unexpected issues. Tip: Creating a news alert for “IRS Audit Updates” can help you stay informed. Also, regularly communicating with us is crucial.
Understand Your Rights: Familiarize yourself with your rights as a taxpayer. Knowing what to expect during an audit can alleviate stress and help you respond appropriately.
What to Expect During an Audit
If you are selected for an audit, knowing what to expect can help you navigate the process more smoothly. Here are some tips to prepare.
Initial Notification: The IRS will notify you by mail if you are selected. The letter will detail the specific items being reviewed on your tax return. Alert us immediately to the notification—do not disregard it.
Document Request: You will provide documentation supporting the items under review, which may include receipts, invoices, bank statements, and other financial records.
Types of Audits: Audits can be conducted by mail, in an IRS office (office audit), or at your home or business (field audit). The type of audit will depend on the complexity of the issues being reviewed.
Response Time: Respond promptly to any IRS requests. Timely communication can help expedite the process and avoid additional penalties.
Professional Representation: You can choose to have a tax professional represent you during the audit. This can be beneficial, especially for complex tax situations.
Audit Conclusion: Once the audit is complete, the IRS will report on its findings. If any changes are proposed, you will have the opportunity to agree or appeal.
If your income exceeds $400,000, it's more important than ever to ensure your tax affairs are in order. Taking proactive steps now can save you from potential headaches and penalties in the future.
Reach out to us if you have concerns about a potential audit. We are here to help you prepare and to answer any questions you may have.