Typically, the IRS audits less than 1% of all tax returns filed in a fiscal year. For example, the IRS audited 0.6% of all individual tax returns filed in 2017 and 0.9% of corporate income tax returns, excluding returns from S corporations, or S-corps.
You Claimed a Lot of Itemized Deductions
It can trigger an audit if you're spending and claiming tax deductions for a significant portion of your income. This trigger typically comes into play when taxpayers itemize.
Case in point: The audit rate among filers with income of $10 million or more is 6.66% (as per statistics from the 2018 tax-filing season). For filers with incomes between $1 million and just under $10 million, it ranges from 2.21% to 4.21%. And among those who report no income, it's 2.04%.
Generally, IRS audits only go back two or three years.
Fortunately, you don't need to worry about that happening. According to the IRS, most tax audits are regarding returns filed within the last three years. If they find a substantial error, they may add more years.
Technically, if you do not have these records, the IRS can disallow your deduction. Practically, IRS auditors may allow some reconstruction of these expenses if it seems reasonable. Learn more about handling an IRS audit.
Here's what happens if you ignore the notice:
You'll have 90 days to file a petition with the U.S. Tax Court. If you still don't do anything, the IRS will end the audit and start collecting the taxes you owe. You'll also waive your appeal rights within the IRS.
On a scale of 1 to 10 (10 being the worst), being audited by the IRS could be a 10. Audits can be bad and can result in a significant tax bill. But remember – you shouldn't panic. There are different kinds of audits, some minor and some extensive, and they all follow a set of defined rules.
As you might expect, wealthy taxpayers are audited more often than the less wealthy—after all, that's where the money is.
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Find out more about IRS audit rates and the chances of you being audited.
| Adjusted Gross Income | 2018 Audit Rate |
|---|---|
| $1- $25,000 | 0.69% |
| $25,000-$50,000 | 0.48% |
| $50,000-$75,000 | 0.54% |
| $75,000-$100,000 | 0.45% |
Top 10 Ways to Avoid an IRS Audit
The IRS does check each and every tax return that is filed. If there are any discrepancies, you will be notified through the mail.
If a tax return has been accepted by the IRS, it simply means that it has met the requirements for submission; accepted returns can always be audited.
If the IRS has shortlisted you for an audit, then you will be informed of this through a written notification that will be sent to your last recorded address. The IRS usually doesn'tnotify you of an audit via phone or email, so be wary of any email that claims to be about an IRS audit.
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