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The IRS is increasing 'hobby loss" audits

One of the benefits of owning a business is the ability to take deductions for expenses that are legitimately used in an effort to produce income. Some Georgia businesses end up in the red where expenses exceed income for the particular tax period. If this occurs regularly or in an excessive amount, the attention of the IRS may be triggered. The issue that may arise is the determination of whether the enterprise is in fact a for-profit business or if it is more of a hobby, for which losses cannot be deducted.

Fewer top earners are being audited by the IRS

According to ProPublica, taxpayers in Georgia who make less than $20,000 a year may face the same chance of being audited as those in the 1% of top earners. In many cases, low-income individuals face audits because they claimed the Earned Income Tax Credit (EITC). The EITC audit process is automated, which makes it easier for the government to perform in a timely manner.

Audit rates falling for taxpayers in most income brackets

In 2018, only .59% of federal tax returns were audited. This was a decrease from 2017; in fact, it was the seventh straight year in which overall audit rates decreased. Taxpayers in Georgia and elsewhere who made more than $10 million also saw their audit rate decline in 2018. In that year, 6.66% of such returns were audited compared to 14.52% in 2017 and 34.69% in 2015.

Wealthy Americans at a lower risk of being audited

In fiscal year 2018, Georgia taxpayers and others who made at least $10 million saw their audit rate fall to 6.66%. In fiscal year 2017, the audit rate for those making at least $10 million that year was 14.52%. Audit rates also dropped for those who made between $1 million and less than $10 million in fiscal year 2018. This cut in audit rates for higher earners comes after the tax code overhaul in 2017.

Actions that may lead to an audit

It is unlikely that an individual in Georgia or anywhere else will have his or her tax return selected for audit. Overall, just 0.6% of returns will face further scrutiny after they are sent to the IRS. The odds of an audit are influenced by how much money a person makes. Those who make $10 million or more have an audit rate of 14.4%, but money is not the only factor in determining whether a return will be reviewed.

Wealthier taxpayers may face more frequent audits

Taxpayers in Georgia may fear an IRS audit as one of their worst nightmares. These detailed overviews of tax filings may leave even honest taxpayers worried. That's why filers should be aware that the agency announced that it may be changing its methods to determine which returns to audit. In testimony before Congress, the IRS Commissioner said that the agency would work to increase its focus on wealthier taxpayers. This came in response to questions from members of Congress about why people with low incomes were disproportionately targeted for audits, particularly applicants for the Earned Income Tax Credit.

Fewer audits, best practices mean less tax hassle

Georgia residents might be happy to know that their chances of being audited are fairly low. While it is still important to turn one's taxes in on time, an individual has a 1 in 160 chance of being audited. In 2010, about 1 in 90 people were audited. A tighter budget led to a smaller IRS, which means fewer audits.

Dealing with tax audits

Some Georgia taxpayers may be concerned about getting audited by the Internal Revenue Service. Much of the concern could be due to the significant amount of misinformation that circulates about tax audits.

Behavior during audit could lead to criminal tax case

Criminal tax cases are relatively rare in Georgia. Tax professionals and attorneys will say that one common way to bring on a criminal case related to taxes is to be evasive or obstructive during dealings with the Internal Revenue Service. It's something to keep in mind during an audit, the behavior of the person being audited could turn the case into a criminal one. When an auditor comes across suspicious behavior during an audit, he or she can alert the Criminal Investigation Division of the IRS.

Keeping tax records forever isn't a bad idea

Georgia residents and others are advised to keep a physical and digital copy of a tax return for as long as they live. This can be helpful in the event that the IRS claims a person hasn't filed a return in a given year or filed a fraudulent return. Furthermore, the government generally has no deadline to come after a taxpayer who understates his or her income on a tax return.

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