I am not trying to beat taxes, I am just curious, because I am 17 and know didly about taxes.
What is the overall probability of being audited? What are some of the variables that contribute to this general probability?
What are some characteristics that make someone MORE likely to be audited?
I am 17 and haven’t ever filed tax income yet. If I continue this, how many years will it take for the IRS to try and contact me about the no filings?
What if I only file, say, $10k for my full-time personal business (Babysitting/daycare for instance) every year for 10 years, but have a big house and lots of cars and such … a)Will the low income throw a red flag to the IRS and; b)will the existence of my expensive assets throw a red flag too?
Please assume that with all these questions, I don’t have a checking account and any checks I receive for my pet shop are brought to the customers’ banks and cashed for cash, either by me (which requires my finger print) or by someone i know (which requires my signature on the check… a smiley face or whatever I choose that day since banks don’t care!)
Most Important Question: 5) Will the absence of a checking account or any account period throw a red flag to the IRS.
Of course, these are all speculative questions with no firm answer, but all I am looking for is to get a feeling for how the IRS handles audits. I have talked about this with my dad and he has told me some of this stuff, but he doesn’t know everything.
Well, being self-employed is one factor that increases your risk. The chance of being audited based on the 2001 returns filed is just a tad over 1/2 percent. But self-employed individuals are under greater scrutiny since there’s rarely a back-up such as a W-2 for employed taxpayers.
But yes, having a big house and lots of cars and only $10,000 in profit reported will definately be scrutinized. If you itemize deductions and have over $10,000 in mortgage interest, I would wonder how you’re paying the mortgage. Of course, there are those individuals that do have inheritances and large savings accounts, but your interest income reported from those should indicate that. Well, maybe you cashed in some investments; then there would be a capital gain report. In short, there’s a lot of indicators that could explain a small income with lots of assets, but if they can’t see it on the return, then someone is due a call.
I’m not aware of any indicators based only on the absence of a checking account. But other factors to look for would be charitable donations in excess of 10% of gross income, large charitable donations of property rather than cash, unreported income from 1099’s and so on.
As for not filing, there is no statute of limitations if you fail to file. The IRS can take their sweet time and come see you ten years later for that return information. I might suggest that this is totally unfun and that you ought to file to at least set the statute of limitations in motion. Normal time period that they can assess is three years, or six years if gross income is understated by more than 25%. No limitation for fraud.
As for the mortgage, I can just take my cash to the local bank and pay my mortgage every month. Definately, having cars, houses and boats with no income is shady, but if I buy these things with cash, how will the IRS know I own them? Do they look at house ownerships and then look at those people’s taxes? Do they really dig deep like that?
I am talking about never ever owning a checking account or any account of any kind for my whole life. But buying a house with cash and everything else. Will this raise the probability of an audit?
If I am an IRS agent and I see tax reports for a daycare service out of a home every year for $10k profit with no kind of tax shelter being sought and no itemizing whatsoever, what is going to make me look further into it? Would this report look suspicious in any way?
Really, I am wondering about the probability of being audited right now. What happens after an audit has started is for another thread I guess.
They must be reported by any vendor to the IRS? Like, if i buy a $12k car with cash, the dealer has to report it to the IRS? Ok, did not know that, interesting. Good info there.
What if I never pay more than $9k cash at one time. Like, what if the down payment was $9k and all my subsequent payments are less?
Paying cash for a house will arouse suspicions to the point the IRS will find out about you. There is no way around it.
Seriously, if you really want to avoid paying taxes, you cannot have a bank account, you cannot have a loan, you cannot have a mortgage, you will never own a credit card, you cannot legally work in the USA (a social security number is required), and you cannot even be self-employed (those people who do business with you, and know of your circumstances, will run a risk themselves with the IRS).
I suppose if you buy a car or boat and you register it, then there are public records. Does the IRS blindly look at registered cars and then follow up to see how they were paid for, hoping to catch someone from the other end (catching them blindly, rather than seeing their report and then catching them).
I am just concerned with the IRS’s daily routine. What the agents do all day and how people are selected for auditing.
FYI, if you do your taxes with TurboTax (either the online version, or buy the product on CDROM) it will inspect your return and notify you of any “audit flags” it finds.