Most people wonder if they will be audited and what the potential consequences would be. The IRS has released their audit statistics for 2009. I found some quite interesting trends.
For individual tax returns with income less than $200,000 and nonbusiness return, i.e. W-2 wages earners only, the percent of those returns audited was 0.4% with additional tax owed of $3,247. So a very very small percentage of returns but a decent amount of additional tax owed. But if you file for your business (Schedule C, E, F or employee business expenses), the percent audited increased to 4.2% for businesses with income ranging from $100,000 to $200,000. And the amount of additional tax owed significantly increased to $32,982!
For higher income individual tax returns (income greater than $200,000), 2.3% of returns were audited with additional tax owed of $14,187. Same trend continues for those filing a Schedule C, etc. Percentage of returns audited is 3.1% and additional tax owed of $37,377.
So you can see the impact of making sure your Schedule C, etc. accounting is accurate and complete. Those are some significant dollars to come up with plus there would be penalties and interest.
For corporate returns, there is a different trend. It seems the larger corporations do not have as much additional tax owed. For example, a corporation with less than $1 million in assets, 1.3 percent of returns were audited with additional tax owed of $158,600. But for corporations with assets between $5 and $10 million, they were audited 2.7% and additional tax owed of $7,613. While a picture is worth a thousand words, these numbers are in HD!
So seems that has companies become larger, accounting improves so there are fewer corrections made. Smaller businesses may lack the resources but considering the tax damage, probably worth investing in competent accounting support.
Not sure how you would fair in an audit? Please feel free to contact me if you want to review your accounting processes to avoid paying $32,000 or more if you are audited. We can meet with you to fill in your accounting needs.