10 IRS Audit Red Flags for Retirees
You may be wondering about your odds of an IRS audit. Most people can breathe easy. The vast majority of individual returns escape the IRS audit machine. In 2018, the Internal Revenue Service audited only 0.59% of all individual tax returns, and 81% of these exams were conducted by mail, meaning most taxpayers never met with an IRS agent in person. So the odds are generally pretty low that your return will be picked for review.
That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors. Math errors may draw IRS inquiry, but they’ll rarely lead to a full-blown exam. Check out these 10 red flags that could increase the chances that the IRS will give the return of a retired taxpayer special, and probably unwelcome, attention.
- Making a lot of Money
Although the overall individual audit rate is only about one in 170 returns, the odds increase as your income goes up, as it might if you sell a valuable piece of property or get a big payout from a retirement plan.
IRS statistics for 2018 show that people with incomes between $200,000 and $1 million who do not file a Schedule C had an audit rate of 0.6%. The rate is 1.4% for Schedule C filers. Report $1 million or more of income? There’s a one-in-31 chance your return will be audited.
We’re not saying you should try to make less money — everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you’ll be hearing from the IRS.
Failing to report taxable income from wages, dividends, pensions, IRA distributions, Social Security benefits and other sources will almost certainly draw unwanted attention from the IRS.
The IRS gets copies of all the 1099s and W-2s you receive. This includes the 1099-R (reporting payouts from retirement plans, such as pensions, 401(k)s and IRAs) and 1099-SSA (reporting Social Security benefits). The IRS’s computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill.
So, be sure to report all income, whether or not your receive a form such as a 1099. For example, if you got paid for tutoring, giving piano lessons, driving for Uber or Lyft, dog walking or selling crafts through Etsy, the money you receive is taxable.
Continue reading here: https://www.kiplinger.com/slideshow/retirement/T056-S011-10-irs-audit-red-flags-for-retirees/index.html
