The IRS can be intimidating, regardless of your income bracket. And when you are considered to be a high earner or high-net-worth individual, the fear of an audit becomes even more alarming. And rightly so! Statistically, people with high net worth or assets with at least $1 million are two to 10 times more likely to be audited than someone in a lower tax bracket. There are two general reasons why:
- People with high net worth tend to use more sophisticated financial, investment, and business structures to reduce their tax liability or avoid paying them holistically.
- A successful audit of high net worth individuals will typically net higher amounts of money for the IRS to collect.
However, there are certain steps you can take to help reduce the likelihood of being audited. Let's take a closer look at a few proactive ways you can help avoid a tax audit. And if you have any questions, don't hesitate to reach out to the expert CPAs at MB Group.
Avoid a Tax Audit with Transparent Foreign Banking Filings
If you have money stored in an off-shore account or engage in currency transactions, it's imperative you follow the letter of the law with all required filings and reports. In terms of foreign bank accounts, make sure you have electronically reported all foreign accounts that were more than $10,000 at any point during the previous year. You should strive to file the FinCEN Report 114 (FBAR) by April 15th. You may also need to include IRS Form 8938 if you hold significantly more than $10,000 in a foreign account. If you have questions about the process, contact the experts at MB Group.
Foreign Currency Transactions Can Trigger a Tax Audit
At the same time, if you engage in currency transactions, it's vital you are precise. The primary purpose of currency trading is to allow businesses that operate in more than one country to reduce exchange movement risk while limiting the impact it has on your profit line. However, some people attempt to use foreign currency as a "get-rich-quick" project that rarely ever ends well.
In any case, when you engage in currency transactions, you should be aware the IRS gets a report of every transaction over $10,000 from car dealerships, casinos, banks, and other businesses. So if this is your arena, don't try to circumvent currency transaction rules because it's a sure-fire way to initiate a tax audit.
Failure to Report Income Can Trigger a Tax Audit
As you know, the IRS gets copies of every W2 and 1099 you receive. Undoubtedly, one of the easiest ways to sound the alarms is to overlook income or fail to report income. And the income you report should be precise. If the income you reported fails to match what the IRS has reported by your investments, banks, employers, and similar entities, you could have a problem.
One of most overlooked areas with income is alimony. When you and your newly-divorced spouse complete your tax preparation, the IRS will compare the individual returns to identify when alimony payments are reported on one but not the other.
Contact MB Group for High-Net-Worth Tax Planning & Strategy
No matter your income, everyone has to deal with tax planning and preparation. However, taxes impact those with a high net worth in a much more significant way. Because you are usually burdened with higher tax bills, it only makes sense for you to look for ways to minimize them. And the Certified Public Accountants at MB Group can help. In addition to minimizing your tax liability, we will work with you to help avoid a tax audit and give you superior peace of mind, contact MB Group today.