Filing taxes can be a complicated process, and if there's one way to take your associated stress to the next level, it's to fixate on getting audited. Nearly 1 in 4 Americans are worried about having their returns audited, according to a recent NerdWallet study, but for the vast majority of those folks, that fear is largely unfounded.
What are your odds of an IRS audit?
Believe it or not, your chances of getting audited are actually pretty low, particularly if you're an average earner. Each year, less than 1% of tax returns are flagged for further scrutiny, and a big part of that boils down to limited IRS resources. That's right: The agency only has the capacity to examine so many returns, and so it's likely to focus on those with glaring errors or omissions, as well as those listing incomes that are extremely high or extremely low.
But even higher earners need not worry so much. In 2016, the IRS audited just 1.7% of returns listing incomes in excess of $200,000. That's not a significant number at all. In fact, it's only once you really start bringing home the big bucks that your odds of an audit climb. Case in point: In 2016, 5.8% of returns listing over $1 million of income were further inspected.
Now keep in mind that if you wind up reporting no income on your tax return, your chances of getting audited are higher than someone reporting between $200,000 and $500,000. But it still pays to file a return if you're eligible for a refundable tax credit.
Of course, being an average earner doesn't automatically make you immune to an audit. If you lie on your taxes, or mess up your return in such a manner that the IRS has no choice but to question it, then you'll likely receive a follow-up inquiry. At the same time, you can take steps to lower your audit risk, thus avoiding that hassle in the first place.
Reducing your audit risk
If you'd rather stay off the IRS audit list this year, there are a few things you can do to achieve that goal. First, report all income you receive, and report it accurately. Every time you get a tax form showing income that was paid to you, whether in the form of a W-2 or a 1099, the IRS gets a copy as well, and if the agency's records don't match what you're reporting, your return will likely get flagged.
Next, be careful when claiming deductions. It's one thing to list $10,000 in charitable contributions when your income is $200,000, but if you claim that amount against $40,000 in earnings, it's bound to raise a red flag.
Finally, be sure to file your return electronically as opposed to doing so on paper. The IRS reports that the error rate for paper returns is 21%, whereas it's less than 1% among electronic returns. Avoiding mistakes is a good way to steer clear of further scrutiny.
Don't panic if you do get picked
It may be the case that despite your best efforts, you wind up getting audited nonetheless. If that happens to you, don't flip out. First of all, the majority of audits are conducted and settled by mail, which means that your odds of facing off live against an IRS agent are pretty slim. Second, don't forget that an audit can sometimes work out in your favor. If you're dealing with a reporting mismatch, for example, it could be that the IRS has a higher number on file than what you listed on your return. And if that's the case, that audit could actually put money back in your pocket. Of course, most people don't go into the audit process expecting money in return, but the point is that you never know how things might shake out -- and that's reason enough to stop worrying about getting audited and focus on getting your taxes done instead.
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