Here’s a book that’s probably not on your summer reading list…but if you make a lot of money it should be.
It’s called the IRS Data Book.
It’s not as exciting as a Tom Clancy novel…but still fascinating in its own way.
The IRS Data Book is updated every year and it provides a great look inside the world of the IRS. The book points out all kinds of interesting stats including the number of tax-returns filed that year and how much tax revenue was collected. For example, in 2012 Americans filed 146 million individual tax returns…and the IRS examined a little more than 1% of them.
Going from percent to real numbers…that means the IRS audited 1.5 million Americans that year.
You might be patting yourself on the back by not being one of the 1.5 million audited Americans in 2012, but have you ever wondered your probability of being audited in the future? Like most things having to do with money…it all depends on how much you make.
For greater insight into this answer, take a look at this recent chart in The WSJ:
Income % of returns audited
General population 1%
$500,000 – $1 million 3.57%
$1 million – $5 million 8.9%
Greater than $10 million 27.4%
So what do you know…the more you make the greater your chance of being audited. Most people kind of know this, but now you know your approximate audit risk based on your reportable income.
The WSJ report also gives additional insight into higher risk audit activities. These activities include:
• closely held businesses
• partnership filings
• hedge fund portfolios and other complex investments
• sale of a business
• large charitable contributions
• large deductions
Our affiliate team of leading tax attorneys have helped approximately 5,500 business owners across the U.S. lower their taxes and lower their risk of audit. In fact, after working with thousands of wealthy business owners across 40-50 different industries, their audit rate is under 1% — which is even lower than the general population.
If you or a business owner you know wants to reduce your chances of being audited…plus save potentially 20-45% on taxes going forward, call or email us today for your free tax savings and audit reduction analysis. When was the last time you got a free second opinion on your second biggest expense…plus learn how you can reduce your likelihood of being audited?
One of the great national pastimes for people from all nations is to talk about their country’s tax situation. In the U.S. there is no shortage of public and private debate on what lies ahead for income taxes.
While it’s impossible to know for sure what what’s going to happen to taxes, it might be a good exercise to reflect on the past year to review what just happened.
Many tax attorneys will tell you changing the tax code is tantamount to open heart surgery. That’s why after all the tax code changing rhetoric dies down, tax rates…and not tax codes are changed.
Based on last year’s tax rate changes, it is estimated more than 75% of Americans saw a tax rate increase in 2013. It is no surprise the wealthiest American’s got hit the hardest. Consider two major components of last year’s legislation that affected tax rates:
1) The payroll tax break ended. For the past two years, the Social Security payroll tax was lowered by two percentage points, from 6.2 to 4.2 percent. If you are self-employed, you now pay 12.4%.
2) The highest tax bracket increased. The tax rate for individuals who earned more than $400,000 and couples making over $450,000 increased to 39.6 percent. That means if you made $1 million last year you paid $122,560 more than you did on the same income the year before. In addition, capital gains taxes went up to 20 percent on high income earners and a 3.8 percent increase was levied on certain levels of investment income. High earners also saw limitations to their exemptions and deductions.
High-earning taxpayers are also paying more for Medicare under the Affordable Care Act. For the first time ever, investment income is now subject to Medicare taxes. Other changes included a $2,500 cap on flexible spending account contributions.
While no one except perhaps a few government officials know for sure where taxes are headed…it would serve us all well to remember the famous aphorism…The best predictor of future behavior is past behavior. Unfortunately that applies to government tax policy as well.
Call or email us today if you want a free no-obligation second opinion on your recent tax filing to see if you overpaid in 2013 . . .and what you can do to better control your tax bills going forward.