Daily Money - I live in fear of the IRS… and toasters

How do I know whether they’re looking for me? Well, where I am and how old I am don’t matter. Audit rates are the highest for people reporting no income or making $500,000 or more.

Steber adds that technological advances mean the IRS can match up data and catch errors on tax returns. It also knows what people in my income bracket are doing with their money. So if I make $1 million a year and my profile looks way different than everyone else who’s making $1 million a year, there’s probably an issue.

“It’s not an age, not a location. It really is a level of transaction,” Steber says. “The more activity you have — higher wages, self employment, transactions, rental property — the more likely it is you’ve made a simple mistake or taken an aggressive position.”

He said there are basically three buckets of audits. The first is a harmless mistake — as in, I accidentally left off a couple hundred bucks from a job I worked at three weeks and later forgot about. The second is a misunderstanding of a rule — I didn’t grasp the way my cryptocurrency should be reported. And the third is an intentional omission — I left off my Ferrari because I didn’t want to pay taxes on it.

Jason Fleetwood, tax partner at CohnReznick, added that sometimes people get audited in connection with another examination — I had a business partner whose return is under scrutiny, and the IRS is now looking at mine for good measure.

He also said that audits often don’t involve meeting with an IRS agent face to face. The majority of examinations are called correspondence audits, which means they’re handled entirely by mail. The agency will ask me to pull backup records together — my W2s, charitable contribution receipts, mortgage statements — and send them back.

It’s all in the name of keeping people honest.

“Don’t get alarmed,” Fleetwood adds. “The first thought that a taxpayer has is ‘I did something wrong,’ but that’s not the case. Just because you’re selected for audit doesn’t mean there’s a problem with your tax return.”

(but please don't tell me you scrolled past all of my hard work)

I don’t need to live in fear of an audit. My chances are incredibly low, and the process isn’t too painful if I do get selected. Much of it happens by mail; it just requires me to pull documents that support my tax return.

Alas, the coronavirus crisis isn’t a get-out-of-jail-free card. The pandemic may have shifted priorities at the IRS, but Steber predicted the agency will probably do the same amount of audits for 2020.

“Audits are kind of timeless. They get popped up on the computer, they sit there in inventory, until somebody comes back to work,” he says. “Don’t panic, respond timely, and get some help.”

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check out this crazy celebrity purchase

via Getty

Actor Rupert Grint, who once bought an ice cream truck with his Harry Potter check, has grown up a lot since playing Ron Weasley. In fact, it just came out that he has a $30.2 million real estate portfolio. Grint owns three different property businesses and several houses, including one 18th century mansion with a private lake, a paddock and an indoor pool. Started from the Burrow, now we here.

five things I'm loving online right now

send me cute pictures of your pets, please

CREDIT: KAITLIN MULHERE

Meet Tucker, a bichon-poodle mix who has fully embraced Florida living. Tucker is too busy swimming in the pool to stress about getting awwwdited.

So I have an opening on my list of things to be afraid of. Now taking submissions.

See you next week.

Julia

P.S. After we talked about credit scores last issue, my inbox lit up with replies! Scholar Shannon told me she has an 829, built over the years by not putting more on the card than she could pay off each month. Scholar Larry has an 826 after decades of work. Scholar Ashley pointed out that her scores differ by the institution calculating them. Finally, Scholar Brian said he assumed a perfect score was impossible to achieve, but last month he reached the mythical 850! (He even sent a screenshot to prove it.) 

P.P.S. Have you ever been audited? How’d it go? What recipe would you put in a care package? Send me love letters at julia.glum@money.com or @SuperJulia. Your comment may be featured here in the next issue!