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Our tax laws are complex and often difficult to understand. Tax professionals warn us of the perils of audits. Penalties for getting our taxes wrong can be stiff — up to and including jail for those who deliberately evade the taxman.
So why don’t we fear the IRS?
Clearly, we have some fears about April 15. A recent NerdWallet survey found seven out of 10 taxpayers have concerns about filing their taxes, such as making a mistake (17%), paying too much (15%) and not getting the biggest possible refund (14%).
But only 11% feared getting audited, NerdWallet found. A recent Rasmussen Reports poll put the number at 14%.
That’s way behind other fears, according to Chapman University, which regularly asks Americans what scares them. One-third of us are afraid or very afraid of reptiles. Public speaking frightens 28%. Dying scares 22%.
And 8.5% of us fear zombies.
While the IRS may engender more fear than the living dead, that still leaves a whole lot of people who are not that worried about facing the agency’s wrath.
Which, if you dig a little deeper, makes perfect sense. Here’s why.
Most people don’t have much chance to cheat
Most taxpayers (68.5%, according to the Tax Foundation) take the standard deduction, which means they don’t have the opportunity to inflate charitable deductions or write off personal expenses the way an itemizer can. Opportunities to fudge your income are limited as well. Each year the IRS automatically matches people’s reported income with more than 2 billion forms filed by their employers, financial institutions and other businesses. Yes, some people work under the table or underreport their self-employment income, including those who make their livings from criminal enterprises. But as the IRS has expanded its matching program, hiding money — at least for the average W-2 wage earner — has gotten harder.
Most of us get help
As tax law gets more complex, fewer of us tackle it alone. About 60% of taxpayers hire a preparer, according to the IRS, and most of the rest use tax software or online tax preparation services to guide them through their returns. Many tax preparers, including CPAs and enrolled agents, can represent their clients if they’re audited, and some software offers “audit protection” for an extra fee. Feeling like someone has your back can make tax time a lot less frightening, says Melanie Lauridsen, senior technical manager for the American Institute of Certified Public Accountants.
The IRS is trying to be less scary
Congress responded to complaints about over-the-top enforcement actions by restructuring the IRS in 1998, telling it to pay more attention to taxpayer rights and customer service. “Back in the day, the IRS was this big scary agency that came in and took over your house and went all through your records,” Lauridsen says. “Now they try to work with the taxpayer.”
People associate tax time with big refunds
Many of us (56%, according to a Pew Research Center poll) dislike the chore of tax preparation, citing the complicated paperwork, the inconvenience and the amount of time it takes. But one out of three (34%) confessed that they liked or even loved doing their taxes. The most common reason cited: the expectation of getting a refund. Nearly eight out of 10 taxpayers receive them, and last year they averaged close to $3,000.
Financial advisors cluck over the inefficiency of such overwithholding. We’re better off getting more money in our paychecks to pay down debt or save more for retirement. But refunds feel like a lottery win, because we forget the money is ours to begin with. That cash can go a long way toward ameliorating bad feelings we have about the process — and the agency that requires us to go through it.
The IRS audits very few taxpayers
The agency’s ability to do its job has been hobbled by huge budget cuts — to the point where IRS Commissioner John Koskinen hopes his staffers will fail to answer just half of taxpayers’ calls this year, instead of the 63% failure rate last year. Overall audit rates have plunged to the lowest levels in a decade, to just 0.84% in 2014, according to preliminary statistics. The highest audit rates the previous year were for people who reported no adjusted gross income (5.62% of those returns were audited) and those with very high incomes, peaking at a 16.22% audit rate for those reporting income of $10 million or more. For people with incomes between $25,000 and $100,000, the rate was about 0.5%.
Most of what the IRS calls audits, by the way, aren’t the sit-down, in-person grill sessions many of us imagine. The vast majority are letters sent out to inquire about a record that doesn’t match or a mistake as simple as a typo, Lauridsen says.
“I think people still get nervous when they see a letter from the IRS,” Lauridsen says. “Once they see what it is, their heartbeat goes back to normal.”