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Audit Fear Due To Large AGI Increase

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#1
In 2017 I made around 100K (AGI) after credits, deductions, etc. I was self employed. I made around the same amount for several years.

I usually take a tax hit every year, haven't seen a refund in a decade. I always owe thousands and pay up quickly.

Last year I sold a website I've been building for good money.

Now I'm worried with this huge AGI increase that my return will be audited, but my accountant keeps telling me "don't worry, an auditor will see your AGI increase is due to starting a new job and the sale of your website, and on top of that you took a zero cost basis on your sale and you are probably going to owe another 25K in April (for other income)"

I've never had IRS issues, but the word audit makes me shake, since I know they audit far more people with AGI of $1 million+

My records for last year are exceptional (due to the huge sale), but prior years are a bit shaky. If I get audited for 2018, I'll be more than ready. But if they ask to review my two prior years as well, my records are a mess and my records are certainly not the best from 2016.
 
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Just Blue

Senior Member
#2
In 2017 I made around 100K (AGI) after credits, deductions, etc. I was self employed. I made around the same amount for several years.

I usually take a tax hit every year, haven't seen a refund in a decade. I always owe thousands and pay up quickly.

Last year (2018) I sold a website I've been building for $2.35 million. Added to that, I have a new job where I make 225K per year (started in June). I already paid around $600K in capital gains tax and quarterly taxes (based on estimates by my account).

Now I'm worried with this huge AGI increase that my return will be audited, but my accountant keeps telling me "don't worry, an auditor will see your AGI increase is due to starting a new job and the sale of your website, and on top of that you took a zero cost basis on your sale and you are probably going to owe another 25K in April (for other income)"

I've never had IRS issues, but the word audit makes me shake, since I know they audit far more people with AGI of $1 million+

My records for last year are exceptional (due to the huge sale), but prior years are a bit shaky. If I get audited for 2018, I'll be more than ready. But if they ask to review my two prior years as well, my records are a mess and my records are certainly not the best from 2016.
Seriously? With the amount you make you are posting this on an advice site rather than spend a few hundred on an attorney? Do you think that's wise?
 

Zigner

Senior Member, Non-Attorney
#3
Frankly, the OP doesn't even need an attorney right now. The OP has no legal issues, he simply doesn't trust his accountant. I would suggest that the OP speak to other accountants who make him more comfortable.
 
#4
Frankly, the OP doesn't even need an attorney right now. The OP has no legal issues, he simply doesn't trust his accountant. I would suggest that the OP speak to other accountants who make him more comfortable.
That's exactly the issue. I spoke to a tax attorney, who charged me $250 for a consultation and basically told me nothing of worth - other than "you are being taxed at the full rate on your capital gains, if you receive anything from the IRS, give me a call"
 

Zigner

Senior Member, Non-Attorney
#5
That's exactly the issue. I spoke to a tax attorney, who charged me $250 for a consultation and basically told me nothing of worth - other than "you are being taxed at the full rate on your capital gains, if you receive anything from the IRS, give me a call"
What else would you expect? That's exactly what we're going to tell you...if you get something from the IRS, then contact your accountant and the attorney. We can't predict if you'll be audited, and neither can anyone else.
 
#6
What else would you expect? That's exactly what we're going to tell you...if you get something from the IRS, then contact your accountant and the attorney. We can't predict if you'll be audited, and neither can anyone else.
I fully understand, but I don't know if my set of circumstances places me in that risk. I guess I was looking for some assurances of not to worry and I got really nothing from that attorney.
 

Just Blue

Senior Member
#7
That's exactly the issue. I spoke to a tax attorney, who charged me $250 for a consultation and basically told me nothing of worth - other than "you are being taxed at the full rate on your capital gains, if you receive anything from the IRS, give me a call"
Okay...So what's the problem? Did you just want a "warm-fuzzy" reassurance from us?
 

LdiJ

Senior Member
#8
In 2017 I made around 100K (AGI) after credits, deductions, etc. I was self employed. I made around the same amount for several years.

I usually take a tax hit every year, haven't seen a refund in a decade. I always owe thousands and pay up quickly.

Last year (2018) I sold a website I've been building for $2.35 million. Added to that, I have a new job where I make 225K per year (started in June). I already paid around $600K in capital gains tax and quarterly taxes (based on estimates by my account).

Now I'm worried with this huge AGI increase that my return will be audited, but my accountant keeps telling me "don't worry, an auditor will see your AGI increase is due to starting a new job and the sale of your website, and on top of that you took a zero cost basis on your sale and you are probably going to owe another 25K in April (for other income)"

I've never had IRS issues, but the word audit makes me shake, since I know they audit far more people with AGI of $1 million+

My records for last year are exceptional (due to the huge sale), but prior years are a bit shaky. If I get audited for 2018, I'll be more than ready. But if they ask to review my two prior years as well, my records are a mess and my records are certainly not the best from 2016.
Your accountant is right. Your income sources are a W2 and then a capital gain where you took a zero basis. Even if you have some income from other sources you simply don't have anything that is worth an auditor's time to audit. The IRS isn't going to gain anything by attempting to prove that there is something false on your return. If you had claimed a basis on the capital asset then maybe they might have considered it worth their time to audit, but you did not.

You are really worrying about nothing.
 

Just Blue

Senior Member
#9
I fully understand, but I don't know if my set of circumstances places me in that risk. I guess I was looking for some assurances of not to worry and I got really nothing from that attorney.

My goodness you do want a warm-fuzzy! Don't worry till you have something to worry about. Then take that worry to the attorney. :)
 

Zigner

Senior Member, Non-Attorney
#11
I fully understand, but I don't know if my set of circumstances places me in that risk. I guess I was looking for some assurances of not to worry and I got really nothing from that attorney.
The attorney told you as much as ANYBODY can tell you. Is there a chance that you'll get audited? Sure. Is there a probability that you'll get audited? That's anyone's guess. Instead of spending so much time on here fretting over it, why don't you spend that time trying to clean up your earlier records. It will give you something productive and proactive to do with your time.
 

LdiJ

Senior Member
#12
The attorney told you as much as ANYBODY can tell you. Is there a chance that you'll get audited? Sure. Is there a probability that you'll get audited? That's anyone's guess. Instead of spending so much time on here fretting over it, why don't you spend that time trying to clean up your earlier records. It will give you something productive and proactive to do with your time.
I can honestly guess about the probability of being audited...there is really nothing that an auditor can change...so the odds of an audit are slim to none. Claiming zero basis on the capital gain effectively makes an audit pointless.
 

Zigner

Senior Member, Non-Attorney
#13
I can honestly guess about the probability of being audited...there is really nothing that an auditor can change...so the odds of an audit are slim to none. Claiming zero basis on the capital gain effectively makes an audit pointless.
There ya go...now the OP's only got to worry about a random audit ;)
 
#14
Now I'm worried with this huge AGI increase that my return will be audited, but my accountant keeps telling me "don't worry, an auditor will see your AGI increase is due to starting a new job and the sale of your website, and on top of that you took a zero cost basis on your sale and you are probably going to owe another 25K in April (for other income)"

I've never had IRS issues, but the word audit makes me shake, since I know they audit far more people with AGI of $1 million+
I'll tell you what I tell my clients: audits are not a big deal if your return is accurate and you have the records to support it. So even if your return was audited, given what you've said here you'd not have much difficulty coming out of the audit with no change. If the audit makes you nervous, you can have an enrolled agent, CPA, or tax attorney attend the audit in your place.

The amount of your income is not the sole factor in deciding whether to audit your return. The IRS decides that on a variety of factors. Outside the pure random audits the IRS will have a tax examiner screen the return after the computer flags it to see if there are any promising issues there for audit. From your description of your situation, your return would not be be a particularly good one to select for audit. There don't appear to be issues on it that would present likely areas where adjustments would be made. Note that most audits are not comprehensive audits of every line of your return; instead the agent or auditor will select the parts of the return that have the best potential for adjustment.

So I were you, I'd relax and not worry about it. Your chances of audit are not very high to begin with, and even if you are selected you should come out of the audit just fine.
 

xylene

Senior Member
#15
What would be the worst that would happen if you are audited?

Is that why you are worried?

In think you might be worried naively because of your concerns. Paying vs getting a refund is not an audit defense.

Self employed persons making any kind of living off it are always going to be 'paying'

Youll be fine.
 
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