Middle Class? Get Ready For Your Audit!

If you make from $25,000 to $100,000 dollars, the IRS is much more likely to audit you this year, and those caught cheating can expect to pay about $4,100 more in taxes.

From the NYT:

Middle-class Americans most likely to have their tax returns examined under the new strategy are those who own a business, even a side business, or are landlords or have investment income. There is little or no independent reporting of such income; the I.R.S. has proposed increased verification and some withholding of payments to independent contractors to reduce cheating, but Congress has not moved on any of those suggestions.

Middle-class taxpayers who file a Schedule C — freelancers, consultants and very small businesses — are three times as likely to be audited as those in the same income group with no such business income.

The I.R.S. is also increasing scrutiny of people whose returns show they have bought into any of the growing number of schemes sold by people who teach, falsely, that wages are not subject to tax. Some customers of these schemes have received prison terms of more than 10 years, and the Justice Department is pursuing civil and criminal cases against scores of tax fraud promoters.

Blended families are also more likely to be audited. The I.R.S. said that it is finding that families created after a divorce, or the death of a spouse, often have children who are claimed on more than one tax return.

Even though the middle class will be facing more audits this year, they’re still technically the least likely group to be targeted with an audit. For those making under $25,000 the odds are 1 in 94. Above $100,000: 1 in 16. Last year the middle class odds were 1 in 140.—MEGHANN MARCO

I.R.S. Audits Middle Class More Often, More Quickly [NYT]
(Photo: amyadoyzie)

Comments

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  1. blchrist says:

    That makes sense. People who make more than $100,000 are probably likely to have an accountant do their taxes, and people who make less than $25,000 don’t pay any taxes anyway. The IRS should be auditing the people most likely to make mistakes (or cheat) on their taxes.

    The fewer people who cheat on their taxes means (in an ideal world) lower taxes for the rest of us.

  2. Trick says:

    @blchrist:

    The fewer people who cheat on their taxes means (in an ideal world) lower taxes for the rest of us.

    Keep on dreaming!

  3. bedofnails says:

    @blchrist:

    Right, making more than 100K AND having a reputable individual like a tax accountant complete your return – no way you’re going to cheat!

    This is indeed moronic. The IRS is going to spend the same amount of time/money auditing some guppies, netting a few $$ in mistakes; whereas the same auditor could be knocking on a whales door.

  4. shad0ws says:

    @blchrist:

    people who make less than $25,000 don’t pay any taxes anyway

    … um. what?

    only if they’re tax cheats.

  5. DaveInTheCorn says:

    Most people who make less than $25k pay a minimal amount in INCOME taxes (FICA/Medicare is a different story, they pay about 8% for that). For instance, a single individual making about $25k would pay, after standard deduction and exemption pay about $170 in taxes. A married couple with two children making $25k would not pay any taxes, moreover they would get a nice refund, probably in the area of $4000

  6. @shad0ws: Technically, blchrist is right: people making $25,000 aren’t likely to owe any more in taxes than what’s already taken out of their pay.

    Unless of course their income isn’t getting taxed for some reason.

  7. shad0ws says:

    @Rectilinear Propagation: well, i make less than $25K, and i definitely paid an income tax. in fact, with some money from an education account that was pushed around, i ended up paying around $600 (and yes—ouch).

    the education stuff might make me a special case, but even so—i know i’ve at least paid state income taxes for the last 4 years.

    you’re also assuming that it *is* correctly taken from pay in all cases. while that might be the ideal, on a more practical level i’ve found it doesn’t always happen that way. you know what happens when you assume….

  8. spanky says:

    @blchrist:

    I’m not sure what you mean by that. People who make less than $25K do pay taxes. Everyone who makes over $8450 a year pays taxes. It looks like people who make $25K pay $2101 in federal taxes alone, if they take just the standard deduction.

  9. blchrist says:

    Fair enough, I should have said that people who make less than $25,000 probably don’t pay enough taxes to make an audit cost effective. You’re right that single people with only the standard deduction will pay taxes at that income level. With one child, the tax goes down to $540 and with two kids you wouldn’t pay any taxes. (I’m basing those numbers on the IRS witholding calculator).

    That doesn’t change the basic point that the middle class is probably the best target for audits.

    @bedofnails: People who have accountants (not H&R Block or Jackson Hewitt) in general find ways to avoid taxes legally. Obviously there are some high profile exceptions, but for the most part, they can find ways to reduce their tax burden legally.

  10. IRSistherootofallevil says:

    Another government attempt to screw the middle class. Disgusting.

  11. fairtaxman says:

    If you are serious about what is fair, think about the fair tax bill being considered in congress.