How common are tax audits?

[Jrouss]

I believe the actual number is 4%

I have never been audited and I hire a CPA to do the taxes.  To me it is well worth the money to not have the headache of doing it myself, and if I do get audited then I have someone that can deal with it.  The few thousand dollars that it costs for the CPA is well worth it to track and keep everything in order and figure out the office and personal taxes as well as the multiple K-1s.  Could I do it myself, yes; do I really want to NO.

[Dr. Mom]

Like Kamban, we have a CPA who does my husband's office taxes and payroll so it is easy to just let her do our personal as well.  It frees my time to be sure I am getting all our deductions and tax credits done.  We have done well with 529's and the Small Business Healthcare Tax Credit.  The IRS every few years wants more info to document these than what is required when our 1040 is filed.  I just take the letter to the CPA and forget about it. I anticipate the same will happen with my dual tIRA rollover to a Solo 401 and simultaneous Roth conversion this year.  Worth every penny we pay them to do our personal taxes to have them deal with the occasional IRS audit letters.  They do not charge us extra when these letters pop up.

[VagabondMD]

At one time, I did my own taxes. (Schedule C, Schedule H, 1099s, K-1's, wife's one time self-employment, etc.) A few years ago, I started buying state tax credits, and there was no way for me to (then) use TurboTax to file on my own. I started using a CPA and am happy that I have done so. Perhaps when I retire, I have more time, and my financial situation is (hopefully) less complex, I will go back to doing taxes myself.

I really enjoyed playing with variables on the software to see how they affected taxes to be paid. I understood my tax situation much better when I processed the return myself.

[Kamban]

My return has so many k-1, 1099 and some houses we own as rental that it would be impossible for me to do a return that will not trigger an audit. And I am fairly intelligent person.

Besides, my CPA does my private practice office return and has all the paperwork from that. I give him the rest of the details for my personal return. If I am audited then I will just let him handle it and submit the documents he asks for.

Once in the past the state audited me for some sales tax on items we did not pay ( and we had the state law stating that we did not have to pay sales on certain items that we administered to patients). I pointed him to the necessary law and he met the auditor in his office (who was a buddy and former private practice CPA turned IRS auditor). I did not have to take time off from my office or do anything. A month later I got a clean bill of health from the state department of revenue. After that I never even entertained the thoughts of doing my own taxes.

[artemis]

I've been audited once, after a fashion.  The IRS didn't believe my charitable deduction that year was real, and so they just disallowed the deduction and claimed I owed $10,000 in back taxes.  While I had the necessary documentation to prove my case, I was glad to have my CPA holding my hand through the process.  He did all the real work with the IRS, all I had to do was send him the necessary documents he didn't already have (the IRS wanted copies of canceled checks and credit card statements, not just the donation letters provided by the charities.)

[jfoxcpacfp]

Echo wrote:

I previously used Turbo Tax, but have used a CPA the last 4 years.  I am thinking of going back to doing my own taxes as they are relatively straightforward.  One argument that the CPAs make is that they reduce audits compared to self-prepared tax returns and of course they can help in case of audit. I’ve heard variable numbers, such as 5% of high income returns are audited each year.  But I actually don’t know any doctors who have been audited (perhaps they keep it quiet).

So my question is: How many of you high earners have been audited?

I understand it is a possibility, I just don’t have a feel for how much of a possibility.  I’m not scared of an audit as my taxes are all on the up and up, but I do fear the hassle factor of going through it alone.

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They are very rare. More common the more money you make. More common if you self-prepare a return that you shouldn't be self-preparing (schedule C, E, lot of employee business expenses, home office, s-corporation, complicated transactions and so forth). If you and your wife are just W2 employees, probably no reason to pay to have your return prepared.

Then again, if you are just W2 employees who do backdoor Roths every year and accidentally report it as income (as I have seen), a CPA who knows what they are doing is justified. Or if it takes you 3 or 4 hours that you could be using to do something you enjoy. It's partly perspective.

[Craigy]

Save all your records!

[Steve]

I previously used Turbo Tax, but have used a CPA the last 4 years.  I am thinking of going back to doing my own taxes as they are relatively straightforward.  One argument that the CPAs make is that they reduce audits compared to self-prepared tax returns and of course they can help in case of audit. I've heard variable numbers, such as 5% of high income returns are audited each year.  But I actually don't know any doctors who have been audited (perhaps they keep it quiet).

So my question is: How many of you high earners have been audited?

I understand it is a possibility, I just don't have a feel for how much of a possibility.  I'm not scared of an audit as my taxes are all on the up and up, but I do fear the hassle factor of going through it alone.