Now that tax season has officially kicked off, countless filers will no doubt find themselves worrying whether they're doing their taxes correctly, and whether their returns will somehow land on the oft-feared audit list. But before you spend too many nights lying awake stressing over the prospect of an audit, here are some facts it pays to be aware of.
1. Less than 1% of tax returns are audited
Though it might seem like tax audits are fairly common, in reality, less than 1% of returns are audited each year. And your chances of getting audited are even slimmer if you're an average earner. On the other hand, you're more likely to get audited if you earn less than $25,000 and more than $200,000. And believe it or not, your likelihood skyrockets when you report no income at all.
2. Your chances of meeting with a live auditor are pretty slim
When we think of tax audits, we imagine scary in-person meetings with suited IRS agents. In reality, the vast majority of tax audits are conducted by mail. Typically, you'll get a notice about missing information on your return, and you'll need to supply that data so the IRS can further investigate. But if you're an average taxpayer, it's pretty rare for the IRS to require a face-to-face meeting. In fact, the IRS doesn't have anywhere near the capacity to send an auditor to the door of every filer whose taxes require further examination, so if your return is flagged, you'll most likely settle things on paper.
3. A simple math mistake can increase your audit risk
Folks who blatantly lie on their tax returns increase their chances of an audit. But sometimes, an innocent mistake can put you in the same boat. For example, if you miscalculate your earnings or deductions, and the information you submit to the IRS doesn't match what it has on record, there's a high likelihood you'll land on the audit list. That's why it pays to file your return electronically, as opposed to on paper. The IRS reports that the error rate for the former method is less than 1%, whereas the error rate for paper returns is 21%. And that's reason enough to go the electronic route.
4. You may not get audited right away
So you filed your return, cashed your refund check, and breathed a little sigh of relief that you once again managed to stay off the dreaded audit list. Not so fast. The IRS actually gets three years from the tax filing deadline of a given year's return to audit it, so just because you don't hear from the agency immediately doesn't mean your return won't get questioned later on. It's for this reason that it's crucial to retain all relevant tax documents for at least three years following each filing deadline. This means that you'll need to hang onto your 2017 paperwork until April 2021.
5. Tax audits don't always benefit the IRS
Any time the IRS spots a discrepancy between the information you report and the information it has on file, it will likely investigate. But if you happen to accidentally underreport your income, an audit could work out in your favor. In fact, in 2015, a good 40,000 filers whose returns were audited wound up getting refunds as a result. And while you shouldn't assume that your audit will result in money back, you never know how things might shake out.
Rather than stress about getting audited this year, focus on taking steps to avoid that fate. Review your return thoroughly before you submit it, and make a point not to guess at information you don't have in front of you. If necessary, request a tax extension if you don't get all of your paperwork in on time for the deadline. The more accurate a return you file, the lower your chances of ever having to deal with it again.