High audit risk due to lower income. I am retiring and slowing the business down. What can I do to decrease audit risk. A letter with my return to IRS explaining?

[tricke1]

Now have a EIC, Schedule C (which I have every year), reduction in income (approximately 2/3 less than last year) and income less than $100,000. These are all the reasons for high audit risk listed. I am getting ready for retirement and slowing the business down prior to selling it. Will a letter to the IRS explaining this help?

[ToddL · Accepted solution]

A letter to the IRS won't lower your potential audit risk. If anything, it may increase your risk of an audit.

The audit meter is not an accurate predictor of whether your return gets selected for an audit - it only indicates that your return contains information that the IRS has, in the past, subjected to additional scrutiny. Those factors change every year and even when they apply to your return, the chances of an audit are still extremely low. According to Kiplinger, a  Washington, D.C.-based publisher of business forecasts and personal finance advice, "overall, the IRS audits 1 in 143 individual tax returns."

Calculator: What's Your Risk of a Tax Audit?