What Are The Odds Of Getting Audited On Your Taxes

I won't continue you in suspense. The IRS audits less than 1% of all revenue enhancement returns. However, this doesn't tell the whole story. There are several factors that tin can brand your chances of an audit more or less likely, such as your income and whether or not y'all claim certain "red flag" deductions. With that in listen, here's a thorough wait at how likely you might be to receive an IRS letter or telephone call nearly your taxation render.

Tax forms with "audit" stamped on the top.

Image Source: Getty Images.

The overall odds of an IRS audit

During the 2015 financial year, the latest for which complete data is available, the IRS audited about 0.eight% of all tax returns, or ane in every 120 households.

In 2017, I wouldn't be surprised if the audit rate is even lower. The IRS's funding has been slashed in recent years, to the indicate where 50 the IRS publicly admitted that as many equally one-half of the people who call with questions most their taxes might not even get their calls answered. In the midst of these funding cuts, the IRS audit rate dropped from i.1% in 2010 to 0.viii% in 2015. While IRS funding was increased slightly in 2016, further cuts are gear up for 2017, and I tin't imagine the Republican government will be eager to throw more coin the IRS's way anytime presently.

Income makes a big difference

Maybe the biggest cistron that determines your likelihood for an IRS audit is your income. Specifically, if your income is much higher or lower than the average American household, your chances of existence audited become significantly higher.

Information technology's easy to empathise why. After all, the IRS has express resources to enforce the tax laws, so information technology allocates more of its efforts where they're more likely to outcome in additional tax acquirement. For case, if the IRS audits someone who earned $50,000 last year, they may find a couple errors and collect a few hundred dollars' worth of unpaid taxes. On the other hand, an error uncovered in a tax return with a $l million income is probable to bring in quite a bit of boosted tax revenue.

On the lower end, there's simply a lot of potential for abuse, such as unreported income and the challenge of credits and deductions that the taxpayers aren't entitled to. The IRS is particularly wary when the information on a tax return only doesn't make sense. For case, if you reported no income whatsoever last year, just donated $5,000 to charity and claimed a mortgage involvement deduction on a $500,000 dwelling, the IRS may desire to take a closer await.

The difference in audit probability tin can be substantial. Taxpayers with a $60,000 adapted gross income (AGI), for example, have only a 0.47% hazard of being audited. On the other manus, a household with AGI of $7 million has a 19.4% risk. Hither's the total breakdown:

Adjusted Gross Income (AGI) Range	% of Taxation Returns Audited
$0	three.78%
$1-$25,000	1.01%
$25,000-$50,000	0.l%
$50,000-$75,000	0.47%
$75,000-$100,000	0.49%
$100,000-$200,000	0.64%
$200,000-$500,000	1.54%
$500,000-$ane,000,000	iii.81%
$one,000,000-$5,000,000	eight.42%
$5,000,000-$x,000,000	19.44%
$ten,000,000 or more	34.69%
Overall Average	0.fourscore%

Source: TaxFoundation.org.

Deductions and other things the IRS watches for

In addition to income, there are a few other factors that increment your audit adventure. Filing a Schedule C for concern income is one. If you lot file a Schedule C with your revenue enhancement return that shows gross receipts between $25,000 and $100,000, your audit take chances jumps to 2.iv%, far above the overall averages for that income range in the chart above.

There are several other crimson flags that the IRS tends to take a closer look at. You can read a more thorough discussion of some these here, but generally speaking, these are the tax breaks that carry the most potential for abuse. The dwelling function deduction, for case, has very specific requirements -- a clearly divers space in your home must exist used solely for business. Well, the IRS knows that it's easy enough to call a computer cart in your bedchamber an "office", and then the agency may want to verify its legitimacy.

Or, if whatever of your deductions are significantly higher than boilerplate, the IRS may want to take a closer look. Business meals and entertainment expenses are some other area that'southward easy to abuse, and therefore tends to raise eyebrows at the IRS, specially when your profession typically doesn't have those expenses.

The bottom line

Even if your odds of a tax audit are rather loftier, you shouldn't exist worried as long every bit you were truthful on your tax return, and you lot tin can support every deduction yous claimed. And if y'all practise become audited, the audit process is less scary than you probably call back it is. In fact, most IRS audits are conducted by mail, and if yous are entitled to the deductions/credits in question, resolving the situation is a elementary matter of sending in the proper documentation.