When Georgia residents file their taxes, they may be concerned about the threat of an audit by the Internal Revenue Service. The thought of an auditor going through receipts, paperwork and pay stubs can be enough to make any taxpayer nervous. However, statistics show that tax audits are less likely than they have been in years. The budget of the IRS has been cut repeatedly since 2011; at that time, it had a budget of $12.1 billion annually. In 2017, that figure was down to $11.2 billion. During the intervening years, the agency lost one-third of its personnel dedicated to enforcement.
If a person is audited by the IRS, he or she has rights that the agency must respect. For instance, Georgia residents have the right to have questions answered promptly and to expect employees to act professionally at all times. If a taxpayer does not receive good service, he or she may ask to speak with a supervisor about his or her experience.
When Georgia residents or businesses receive a notice from the Internal Revenue Service or other tax agency, they likely reach out to their accountants for advice and help. Representation from an attorney could also be beneficial, especially in situations that involve tax disputes or an audit. In some ways, the legal profession is better suited to adversarial encounters.
The IRS audits less than 1 percent of returns submitted by individuals and partnerships. Therefore, it could stand to reason that taxpayers in Georgia and throughout the country have more incentive to cheat on their taxes. However, the truth is that recent changes to the tax code make it harder to do so. It could also be more difficult than people think to avoid reporting income to the IRS because most employers and other parties report an individual's earnings to the government.
Many companies and business owners in Georgia can begin to develop a sense of complacency about the danger of an IRS audit for their firm, especially given the news that IRS resources have been depleted. There have been cuts to the agency's budget over the past few years that have meant that the tax authority's Large Business and Internationa division takes up fewer examinations and makes smaller audit adjustments. Many business owners complete their taxes and rest assured that they do not need to be concerned about an IRS audit.
Business owners in Georgia typically understand the importance of maintaining good records so that they can meet their tax responsibilities. Few anticipate being subjected to an audit. However, some business owners have taken advantage of recent changes in tax law to reduce the tax liability of their businesses. As a result, the IRS may be looking more closely at the tax returns filed by these businesses.
Individual taxpayers in Georgia and around the country are at a relatively low risk of being audited by the IRS. Overall, fewer than 1 percent of federal income tax returns are scrutinized further by the government. However, a person's exact audit risk may depend on several factors such as his or her income, deductions taken and forms included in a return. For instance, those who had an adjusted gross income between $500,000 and $999,999 were audited at a rate of 3.62 percent in 2016.
Georgia residents may have firsthand experience with how complicated the federal tax code can be. Such confusion has led to the creation of generalizations or myths that some may have come to take for granted. While it is true that the IRS generally audits those who make more than $1 million per year, those who make under $25,000 and claim the earned income tax credit may be at risk for being audited.
When you prepare your tax return, you should be aware of key tax issues that might raise red flags with the Internal Revenue Service and lead to an examination of your business practices.
Georgia residents who are in business partnerships should be aware of regulations being proposed by the Internal Revenue Service regarding partnership audits. The agency is having a hearing that will provide taxpayers and their financial advisers the opportunity to voice questions about the rules.