The words “IRS audit” scare many taxpayers. Stories of draining audits that leave people stressed and broke make the idea more frightening than reality.
The IRS also publicizes high-profile audits of celebrities around tax season. These stories are reminders of the agency’s power and create unease for ordinary filers.
How Likely Are You to Get Audited?
The odds are low compared to popular belief. Audit rates have been falling for over a decade.
Today, only about 0.5% of taxpayers are audited each year. That’s roughly 1 in 200 people, a far cry from what most people think.
Types of IRS Audits
The IRS does audits in three ways. Each varies in intensity and documentation required.
Correspondence Audits
These make up about 75% of all audits. The IRS sends you a notice asking for more information about items on your return.
They’re usually resolved by mailing receipts, W-2s or explanations. For many taxpayers, this is the least stressful type of audit.
Office Audits
Office audits require an in-person interview at a local IRS office. You’ll need to bring requested records, such as receipts or bank statements.
It’s smart to go with a CPA or tax attorney. Professional guidance reduces risks and protects your rights during questioning.
Field Audits
Field audits are the most invasive. An IRS agent visits your home or business to review records in detail.
They often focus on business owners or high earners. Because of the level of review, professional representation is highly recommended.
Who Gets Audited More Often?
Audit rates vary by income level. Some groups are audited more than others.
Taxpayers earning under $25,000 are audited at higher rates because of Earned Income Tax Credit (EITC) claims. The credit is prone to fraud and mistakes.
High earners are audited more often. But even millionaires are audited less now than in past decades.
From 2019 to 2022, only 0.4% of millionaires earning $1 million to $5 million were audited. That’s the lowest rate since 2004.
Factors That Increase Audit Risk
The IRS uses algorithms to identify risky returns. Certain patterns increase the chances of being selected.
Large Deductions Relative to IncomeClaiming deductions much larger than your reported income gets attention. For example, a teacher earning $40,000 but deducting $20,000 in expenses will be flagged.
Certain Expense Categories
Auto, travel and meal expenses are closely monitored. A freelancer writing off too many “business trips” may find themselves explaining these deductions in an audit.
Business Losses
Ongoing business losses look suspicious to the IRS. A sole proprietor claiming losses for five years in a row may be asked to prove it’s a real business.
Unreported Income
The IRS matches W-2s and 1099s with what you report. If you forget to report a side gig shown on a 1099, you’ll get a notice.
Sloppy or Incomplete Returns
Missing schedules, math errors or rounded numbers (like $5,000 for advertising) are red flags. Precision matters when filing your return.
High Earners
Those earning over $500,000 are audited more often. The more money involved, the more the IRS wants to review your tax accuracy.
Self-Employment Income
Self-employed workers are audited more. A graphic designer deducting a full apartment as a “home office” might raise eyebrows.
Foreign Accounts
International accounts must be reported. Failing to disclose overseas bank accounts increases audit chances and may trigger penalties.
Cryptocurrency Transactions
The IRS is focusing more on digital assets. Selling or trading crypto without reporting it will almost guarantee IRS follow-up.
Charitable Contributions
Donating a large percentage of income gets audited. For example, donating $50,000 on a $100,000 salary may require proof.
Large Refunds
Large refunds aren’t suspicious alone. But refunds tied to questionable claims will get closer review of your return.
What to Expect During an Audit
Audits always start with a letter in the mail. The IRS never initiates audits by phone calls.
- Correspondence audit: You mail back the requested information.
- Office audit: You meet at an IRS office with your records.
- Field audit: An IRS agent visits your home or business.
If you don’t have receipts, you may reconstruct records or provide explanations. But keeping thorough documentation from the start is the best defense.
New IRS Funding Means More Audits
More funding means more staff and more audits. The IRS plans to hire thousands of revenue agents in the coming years.High earners and big businesses will be the focus. Audit rates for those earning over $1 million will skyrocket.
What Happens If You’re Audited?
You may owe more taxes, interest and penalties. In extreme cases, legal action.
Some audits result in refunds if you’re owed money. Most audits end with a bigger tax bill.
Should You Fear an IRS Audit?
Audits are stressful but less common than you think. Most audits are simple correspondence audits that can be resolved by mail.
Those with unusual deductions or higher income are more at risk. For the average taxpayer, the audit risk is small.
How Tax Law Advocates Can Help
If you’re worried about audits, Tax Law Advocates can help. Our attorneys and tax pros know the process.
Call us at 855-612-7777 or visit taxlawadvocates.com today. Don’t let fear stop you from filing with confidence.
