Audits and Other Post-Tax Considerations

The first tax-filing season under the new Tax Cuts and Jobs Act has come and gone. If you’re keeping up with the news, you’ll know that a lot of taxpayers have been surprised by their tax refunds this year. Some were pleased, but others found they owed more than they expected.1

Now that you know where you stand with the new tax law, you can plan better for next year’s filing. If your refund was particularly large, consider adjusting your withholdings this year. If you owed a lot more than in the past, seek out advice from a qualified tax advisor. In addition, we’re happy to discuss tax-efficient retirement strategies with you — just give us a call.

If you’re concerned about your taxes getting audited this year, the IRS says it selects whom to audit based on “systemic risk-based scoring criteria” that doesn’t include any factors related to the geographic location or ethnicity of taxpayers. However, an analysis of recent IRS practices found that taxpayers in poor, rural communities are most likely to be audited by the IRS.2

In fact, the county with the highest audit rate in the U.S. is Humphreys County, Mississippi, with a population of less than 10,000. Even more interesting, Mississippi is home to eight of the 10 most audited counties in the U.S. This apparently is because the IRS closely checks returns of those who claim the Earned Income Tax Credit, which is aimed at taxpayers with low and moderate incomes.3

On the other side of the fence, the number of high-income earners ($1 million or more a year) getting audited has dropped significantly — down to just 3%, according to data from Syracuse University. The downward trend is similar for large corporations with at least $20 billion in assets. Last year, their audit rate dropped below 50 percent for the first time. One reason these audit rates are down is that these types of taxpayers tend to have complex returns that require more expertise to review. It’s more difficult to audit these returns now that the IRS is significantly less funded than in the past.4

If you do get audited, be aware that the auditor may not have the final say. Last year, more than 24,000 taxpayers disputed their audits involving $1.75 billion in additional taxes. Your first option is to present your case to your assigned auditor and see whether he is willing to compromise on his findings in an effort to close your case quickly. If that doesn’t work, you can file an appeal with the regional IRS office or even take your case to court.5

Note that the IRS has three years from the date you file your return to launch an audit — longer in cases of fraud or back taxes. However, in most cases, the IRS will contact you within a few months of filing your return if you’re being audited. If you haven’t heard anything within two years, it’s considered unlikely that your return will be audited.6

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm.. Insurance products and services offered through B.O.S.S. Retirement Solutions. Marketing materials provided by Infinity Marketing Services.