IRS stands for Internal Revenue Service. It is an agency within the United States government that handles tax collection.
In addition to individual taxes, the IRS also deals with estate, corporate, and gift taxes. This includes both dividends and mutual funds.
How Does the IRS Operate?
The IRS is located in Washington, D.C. and is involved with the taxation of all companies and individuals in the United States. During the filing season of 2018, (which takes lace from January 1st through the middle of April) over 140 million tax returns were processed. During this time period, over $3.3 trillion was collected in revenue, and over $280 billion was released in refunds.
Thanks to technological advancements of the modern age, individuals and corporations now have the option to file for their taxes electronically, with a wealth of services to choose from such as H&R Block or TurboTax. The 2018 tax season saw almost 90% of tax returns made digitally, compared to 31% in 2001.
Although the IRS does recommend the use of electronic tax filing, no particular service endorsement has been made.
Getting Audited by the IRS
An Audit is a detailed look into the finances of a particular organization or individual to ensure that tax laws are being followed.
Each year, the IRS performs audits on a select portion of tax returns. In 2017, roughly 1.2 million tax returns were audited. The breaks down to about 1.1% of company tax returns and 0.7% of individual tax returns.
But the number of audits happening has been steadily decreasing since 2010.
The IRS can issue an audit for a number of reasons, but primary factors involve:
- Total income: those making over $1 million have a 1 in 23 chance of being audited while those who make less only have a 1 in 167 chance.
- Running your own business: Those who are self employed have a 0.8% chance of being audited while those who are not have a 1.6% chance
Other factors that can lead to a higher potential of being audited are:
- Declaring the wrong amount of income
- Claiming too much on your deductions
- Claiming losses due to real estate
- Making suspicious donations compared to income
Source: https://www.investopedia.com/terms/i/irs/asp/
