“Audit” is a word that can strike fear into the hearts of taxpayers.

However, the chances of an Internal Revenue Service audit aren’t that high. Between 2010 and 2018, the IRS only audited 0.6 percent of all individual tax returns.¹

And being audited does not necessarily imply that the IRS suspects wrongdoing. The IRS says an audit is just a formal review of a tax return to ensure information is being reported according to current tax law and to verify that the information itself is accurate.

The IRS selects returns for audit using the following three main methods:²

• Random Selection: Some returns are chosen randomly based on a statistical formula’s results.
• Information Matching: The IRS compares reports from payers — W2 forms from employers, 1099 forms from banks and brokerages, and others — to the taxpayer returns. Those that don’t match may be examined further.
• Related Examinations: Some returns are selected for an audit because they involve issues or transactions with other taxpayers whose returns have been selected for examination.

There are many sound tax practices that may reduce the chances of an audit, including the following:

• Provide complete information: Among the most commonly overlooked information is missing Social Security numbers — including those for any dependent children and ex-spouses.
• Avoid math errors: When the IRS receives a return that contains math errors, it assesses the error and sends a notice without following its normal deficiency procedures.
• Match your statements: The numbers on any W-2 and 1099 forms must match the returns to which they are tied. Those that don’t match may be flagged for an audit.
• Don’t repeat mistakes: The IRS remembers those returns it has audited. It may check to make sure past errors aren’t repeated.
• Keep complete records: This won’t reduce the chance of an audit, but it may make it much easier to comply with IRS requests for documentation.

Remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Most audits don’t involve face-to-face meetings with IRS agents or representatives. In 2019, the latest year for which data is available, 73.8 percent were actually conducted through the mail; only 26.2 percent involved face-to-face meetings.

Learn more about Brumbaugh Wealth Management and how it develops sound financial plans to help you feel prepared for the unexpected and face the future with a sense of confidence.

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1. IRS.gov, 2022
2. IRS.gov, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 FMG Suite.