The Kiplinger Tax Letter recently reported that 2013’s individual audit rates fell to 0.96% and are expected to fall further in 2014, due to budget restraints. (These are audits conducted in fiscal year 2013, not 2013 returns.) That probably can be considered good news, but . . .
• The IRS audited 10.85% of returns showing income of $1 million or more.
• 100% of business use of a vehicle on an individual return paints a red target on a return.
• Schedule C attracts attention, especially if it shows big meals, travel and entertainment deductions.
• A combination of a W-2 and a Schedule C with a loss can raise a hobby loss flag.
• Higher-than-average deductions may attract attention of the IRS, but should not be a problem if proper documentation exists.
• Tax return does not match 1099s and/or information returns? Expect a letter (correspondence audit) from the IRS.
Bottom line. Random audits may go down. Come up on the radar screen of the IRS and you’ll still get a chance to communicate with Uncle Sam.
Also, from Kiplinger: If you want to speak with a live person at the IRS, you have a 61% chance of doing so if you are willing to wait up to 20 minutes. Take it from me, the “hold music” is torture.