What are your chances of being audited by the IRS?

What are your chances of being audited by the IRS?
April 13, 2019
The Week Staff
Here are three of the week’s top pieces of financial advice, gathered from around the web:

40 years’ worth of lattes
Does buying a daily latte put your retirement nest egg at risk? asked Barry Ritholtz at Bloomberg. The answer is — probably not. But let’s say you consume five lattes a week, spending a total of $100 a month. If instead you “save it over the course of your 40-year working life, and earn a market return of 8 per­cent,” that’s $350,000. Adjusting for inflation, that’s about $131,000 in today’s dollars. “Not all that impressive, but still not nothing.” However, the bigger issue is that fixed costs keep going up. “Housing, health care, and education are all expensive — and necessary.” So, you’re right to worry about the big things like income, debt, economic mobility, and inflation. Coffee, on the other hand, is a “trifling issue and won’t make much difference.”

Betting Lyft will sink
Lyft’s initial public offering attracted the attention of traders who are betting the stock will drop, said Stephen Grocer at The New York Times. As of last week, 6.6 million shares were on loan to so-called short sellers, who “borrow and sell the shares, hoping to buy them back at a lower price sometime in the future.” That equals 20 percent of the shares actually available to trade. By comparison, just 5 percent of Facebook’s float was on loan in its initial week of trading. It’s roughly equal to the percentage of Tesla’s shares on loan, an issue that has repeatedly drawn the ire of CEO Elon Musk. Lyft’s public debut “was a test of investor appetite for fast-growing but unprofitable tech companies.” The short sellers are betting that the company can’t maintain its growth.

Some key audit flags
The volume of Internal Revenue Service audits has declined in recent years, to just 1 percent of taxpayers earning $200,000 or less, said Jane Hodges at The Wall Street Journal. The biggest component in how the IRS decides whom to audit is looking “at the company that audit subjects keep,” for example, whether they’ve been involved in transactions with other audited taxpayers. The agency generally goes back only three years in its examination, but it can go back as far as six “if it finds a substantial error.” The most audits (12.5 percent) are conducted on households earning $1 million or more. If you’re worried about the IRS coming to your door, don’t be; 70.8 percent of audits are conducted through written correspondence. Errors are much less common in electronic filings — just 0.5 percent, versus 21 percent in returns filed by mail.