5 Things You Need to Know About Tax Audits

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  • Many tax filers worry about having their returns audited.
  • Not only is the likelihood of that low, but audits don't always work out poorly.

Filing taxes and worried about an audit? Here are some stats to keep in mind.

You've gathered your tax documents, crunched the numbers, and submitted your tax return. Now all you have to do is sit back and wait for your refund to hit your bank account, right?

Well, maybe not so fast. If your tax return is flagged for an audit, you'll need to get through that process before you can collect the refund you're owed. But if the idea of getting audited is something that actively keeps you up at night, here are five reassuring things to know.

1. The likelihood of getting audited is low

You may hear a lot about tax audits, but the truth is they're pretty rare. Among all individual tax returns filed for tax years 2010 through 2018, the IRS only audited 0.63% through the end of 2020 (the IRS can take up to three years to audit a return after its receipt).

2. Higher and lower earners are more likely to be audited

If you're a moderate earner, you may not have to worry as much about getting audited. For the 2018 tax year, the IRS audited 5.3% of tax returns reporting $10,000,000 or more in income, while 2% of those reporting no income were audited. But only 0.1% of tax returns with incomes between $50,000 and $500,000 got audited.

3. Most audits are conducted by mail

When you think of a tax audit, you might picture an IRS agent showing up at your door. But the agency doesn't have the capacity to conduct in-person audits on a massive scale, so chances are, if you do end up getting audited, it'll happen via mail. In 2020, 72.6% of audits were correspondence audits -- meaning, all information was exchanged by mail.

4. A math error won't necessarily result in an audit

It's a good idea to try to avoid math errors on your tax return. Filing electronically, as opposed to on paper, can help increase your accuracy. But keep in mind that usually, the IRS will attempt to resolve basic math errors itself rather than go through the audit process. In that case, you'll generally receive a notice in the mail suggesting an adjustment to your tax return. If you accept that adjustment, that generally closes the issue.

5. A tax audit could work out in your favor

While it's often the case that tax filers who go through an audit end up owing the IRS more money, that's not guaranteed to happen. If you can prove your tax return was accurate, it may not result in an increased tax bill. It's also possible to end up with a lower tax burden, or a higher tax refund, after going through the audit process.

Don't sweat the idea of an audit

While you may not relish the idea of having your taxes audited, it's also not something you should lose sleep over. This especially holds true if you're being truthful on your tax return and aren't hiding income or claiming bogus deductions.

That said, if you're worried you may be setting yourself up for an audit, you can always consider enlisting the help of a tax preparer. Someone who knows the system inside and out may be able to pinpoint ways you can legally reduce your audit risk.

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