It often seems like those with money have it all, right? Yes, having ample financial resources can certainly make life easier. But there are some headaches associated with having a high income or net worth, too. Specifically, those with high income are more likely to be audited by the IRS – in general the IRS audits about one in 100 tax returns; those odds grow to one in 10 for returns with an Adjusted Gross Income of $1 million or more.
Hoping you don’t get audited? Get prepared instead.
Working with your financial professional and/or tax attorney, take these key steps to prepare for the day the IRS comes knocking:
- Audit Risk Assessment. Recent IRS budget cuts mean there’s less focus on overall tax return review and more on high-income issues, so that makes it more likely that those with high incomes will face additional scrutiny. It’s important to know what’s could raise a red flag, so talk to your CPA or tax preparer about high-risk areas.
- Know what they know. Conduct an internet and records search to find out what elements of your financial information are publicly available. Your data could be found in anything from magazine subscriptions to real estate titles to use-permit applications. Be prepared to defend any discrepancies between public records and information included on your returns.
- Keep your documents in order. Beyond simply organizing your paperwork, make sure your record-keeping practices meet IRS expectations. This is especially important if your tax requirements include stringent record-keeping.
- Chose a qualified representative before you’re audited. Since statistically speaking you’re going to be audited at least every 10 years, it’s important to choose a financial professional who understands IRS procedure and protocol to represent you.
If you’re concerned about your audit risk or have any other questions about your financial planning, let’s connect.