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Two years ago, when filing non-resident state personal income taxes, I neglected to include an estimated payment I had made in advance. As a result, the state had to "correct" my tax refund for me and I was sent a small amount more than I had filed for. If I recall correctly, the difference was less than $100.

This past tax year, anxious to avoid a similar mistake, I unfortunately recorded my estimated payment in two places ... the one where it was intended to be reported and also a space that was reserved for estimated payments carried over from a previous year. As a result, of course, the state wrote me to explain that my refund would be less than anticipated; again, the amount of the difference was small.

Now that I have attracted extra attention twice, am I more likely to be audited in the future? Note that my income is low to moderate, I always file on time, and the errors are only on the state returns, never on federal. Relatedly, is it terrible to be audited? Assuming I have nothing to hide and keep decent records?

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That's a solid "maybe, but why worry?"

Criteria for who gets audited are not documented anywhere that I know of. It's mostly random sanity checking, unless they see something that actively calls for a closer look.

If you aren't doing something highly complicated or illegal, an audit is usually pretty painless. They look over your return, sanity check it against data from other sources, and ask about anything that actually looks wrong. If you've kept the documentation you're supposed to (receipts and such), the answers are usually easy and obvious.

If it turns out you underpaid, they'll want that corrected plus any interest on the "loan". I don't remember whether they assessed a penalty too; if so it was minor given that I'd accidentally left one $70k account out of my calculations entirely.

And it may turn out you overpaid; the second time I got a "you missed something" note it was significantly in my favor. Unfortunately I don't think they pay interest in that case.

Admittedly if you are running a business the process of confirming/correcting everything could be a complicated hassle. But that's part of what you have accountants to handle... and outside of the hassle factor and the accountant hours spent handling it, it's still pretty harmless if you weren't pushing the envelope of creative bookkeeping.

Really, for most of us an audit is not something to be afraid of, any more than being called for jury duty is. The government may want a few of your hours, but they really aren't interested in going after folks trying to do the right thing. They really do want you to pay no more (and no less) tax than the law says you should, and they understand that humans, and sometimes software, can honestly miss things in both directions.

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  • One of the tragedies of modern bureaucracy is that sometimes government agencies do go after people trying to do the right thing, because it's a lot easier to go after somebody who is clearly trying but made a mistake than after somebody who knows they do something bad (because those people tend to cover their tracks).
    – xLeitix
    May 16 at 12:59
  • True, but in the case of audits relatively rare and usually easy to straighten out. Don't fear being audited unless you are deliberately doing something that pushes or crosses the law. Really. (Typo fixed. Sigh.)
    – keshlam
    May 16 at 14:25
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    @xLeitix: Taxes are special. If you honestly (even unreasonably) believe that you filed your taxes correctly, then you did not commit a crime (but you still owe the proper amount, of course). If you're one of those Sixteenth Amendment people, then you might get prosecuted. If you're not, then they are not going to waste their time trying to convince a jury that you knew you were breaking the law.
    – Kevin
    May 16 at 18:46

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