There are few things taxpayers dread more than getting audited by the IRS. But is this fear justified? Just what are the chances you’ll be audited?
In 2014, the IRS audited 0.86% of all taxpayers, the lowest rate in over a decade. The IRS performed fewer audits than in 2013, when the overall examination rate was 0.96.%.
However, the 0.86% number is a bit misleading. Your odds of getting audited vary according to your income. Those with higher incomes are audited more often. Taxpayers with incomes over $200,000 had a 2.71% audit rate; while those with incomes over $1 million were audited 7.5% of the time. In contrast, taxpayers making less than $200,000 had only a 0.78% audit rate, and the vast majority of these exams were less thorough correspondence audit.
The IRS uses sophisticated software to decide upon which returns to audit. Your odds of getting audited go way up if, for example:
- your deductions are unusually large for your income
- your deductions are peculiar–—for example, a plumber deducts the cost of a European vacation as a business expense
- you have a money-losing business
- you have a lot of hot-button deductions such as substantial charitable deductions, large mileage deductions or deductions for travel, and entertainment expenses, or
- you have a business that deals with a lot of cash.
Thus, the only sure way to avoid getting in trouble with the IRS is to pay what you owe.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.