May of this year, the IRS published its data book covering returns processed between October 1, 2020 to September 30, 2021. Its pages are chock full of tax statistics ranging from the number of returns filed to the amount of refunds processed. And, yet, what is tucked within this data book is powerful insights that can be easy to miss. One such insight we discovered is found on page 46. This is information every taxpayer needs to know.
About page 46 of the IRS data book.
On page 46 of the data book, it indicates that 249,109 taxpayers who earned under $25,000 were examined by the IRS. In everyday terms, examination means they were audited. They received a notice from the IRS indicating that their return revealed some inconsistencies that the IRS uncovered. The notice includes a detail of the inconsistent or questionable information the IRS discovered on their tax return.
The notice will also include what they need to do to assure the IRS examiner that the information is accurate and their return should be processed as is without any additional tax added to the taxes they owe.
More about this number of 249,109 taxpayers.
It does seem like many of us, right? Well, let's add more to this figures. Also on page 46, the next tier above the $25,000 earners is those who earn $25,000 to $50,000 annually, for those in income levels, in 2021, 105,475 infortunate taxpayers in these income levels were audited. This brings our total audited taxpayers from 249,109 to 354,584 of those earning $50,000 of less in 2021. If this still seems like a lower figure, consider the current U.S. population numbers taken from commerce.gov.
The U.S. population as of January this year, is 332,403,650. If we use a very rough estimate, this means 1 in every 3,000 people were audited and not just any taxpayers those whose income is under $25,000. 1 in every 3,000 people is significant. Visit any regional hospital and you have just virtually encountered 3,000 people. Could that one in 3,000 be you?
To further add to their burden, these audited taxpayers were burdened with was approximately $4,990 more in taxes. If $50,000 in yearly income is low, consider taking away a ten of this in additional taxes. We are talking about those who are either teetering the poverty line or barely keeping their head about the water, with this additional tax assessment, getting ahead is no longer in the equation now or for years to come.
Even if you are making more these unfortunate audited taxpayers, you can take simple steps to avoid getting audited. Don't think it can't happen to you. Take these simple three steps to stay out and keep out of these awful audit statistics by:
Keep these in the front of your mind, write them down, or stick them on your refrigerator. Print out our helpful infographic with quick tips when filing season comes around (generally, April of every year for most taxpayers). If you take these simple steps alone, you can save yourself the headache of not knowing when or if you will be audited should any inconsistencies be discovered by the IRS that you didn't anticipate.
Filing on time you avoid one of the highest penalty out there, the late filing penalty which will continue to accrue until you have paid your balance in full and could reach up to 25% of your assessed balance (this is your tax based on your taxable income. Taxable income generally is our gross income minus your standard deduction). This penalty can be avoided by simply filing on time.
Keeping things accurate is based on your knowledge of filing, excellent bookkeeping and recordkeeping habits so that you never receive an audit notice but if you do you will have the substantiation to answer any IRS request. Better yet, don't leave things to chance, it's like jumping off a cliff not knowing where you'll land, hire a professional. We can help. We have filed over 500 accurate tax returns this year alone, we can help you. Learn more.
Lastly, filing electronically (along with paying on time), lowers the 10-year statute of time that the IRS can collect on outstanding tax owed down to 3 years from the date you filed, to send you balance due notices, collection notice, or an audit notice. Generally, after those 3 years you are in the clear.
Take these three simple precautions to avoid being that 1 of the 3,000. If you get audited, don't panic. Follow the information in the notice to the letter, and know that the audit process can be a lengthy, frustrating, time-consuming, and, unfortunately, oftentimes, it is fruitless process. We recommend if you get audited to hire someone experienced and authorized to represent you.
Those who are authorized can be attorneys, CPAs, or Enrolled Agents. We are Enrolled Agents and can assist you if you get audited. It is one of our specialties. Enrolled Agents, like us, have been examined by the IRS (not by audit) but through three rigorous tests administered by the IRS that tests our understanding and ability to deal directly the IRS on behalf of taxpayers, like you. We know its rules, its standards for documentation, and the process of its administration. We are here to help. Learn more.
Our final thought is that you work hard for your money. Don't take it for granted. Get help when you need it and keep diligent to avoid paying more tax than you need to, so that more money stays in your pocket where it belongs.