The IRS May Audit You if You Fall Into 1 of These 7 Categories

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KEY POINTS

  • Less than 1% of individual filers are audited each year.
  • Complicated or abnormal returns may trigger an audit.
  • Wealthy filers are more likely to face an audit than those with lower incomes.


The average person isn't likely to be audited, but some behaviors could increase your risk.

As if filing taxes weren't enough of a headache, there's the constant worry about being chosen for a tax audit. Indeed, if pop culture is to be believed, audits are hiding around every corner.

Well, relax. Less than 1% of individual filers -- 0.63%, in fact -- were audited between 2010 and 2018. Of course, that isn't to say you'll never be audited. There's always the chance an error or mistake on your return could wind up with someone taking a closer look.

Audits aren't exactly random, however. Certain people tend to set off more alarms than others, making it more likely they'll be audited at some point. Here are seven things that can increase your chances of being audited.

1. You itemize your deductions

The more complicated your tax return is, the more likely it is that mistakes will be made. If you itemize your deductions -- instead of simply taking the more common standard deduction -- you may be more likely to get audited. If you choose to itemize, be sure to hang on to your documentation in case you need to back up your claims.

2. You're self-employed and/or work from home

Self-employed workers, freelancers, and folks who work from home can be eligible for a range of deductions not available to the typical worker. For example, if you work from a home office, you can often deduct some portion of your housing and utility payments. But these deductions have a lot of fine print that may be easy to overlook; they're also ripe for, er, exaggeration. Deductions that look above the norm may be enough to trigger an audit.

3. You have assets in another country

It's hardly unheard of for folks to use foreign banks or investments to dodge U.S. taxes -- and the IRS is well aware of many of these tricks. Any assets or cash you have in another country could mean an auditor takes a look at your bank accounts to ensure you're accurately reporting income and assets both at home and abroad.

4. You received an income-based benefit

Some of the credits or benefits you can receive are income-based, and the IRS will definitely take a look to ensure you're really qualified. For instance, many returns that include the Earned Income Tax Credit (EITC) will get a second look to ensure the income qualifications are met. Additionally, expect the IRS to double check you were within the income threshold for any stimulus checks you've received.

5. You report no or negative net income

Other than the very rich, the category of people most likely to be audited are those whose returns claim no net income or a negative net income. This could be due to investment or business losses larger than revenue for the year. Overall, however, this typically includes less than 0.5% of the individuals who file.

6. Your income and lifestyle seem at odds

The IRS has automated systems in place to help handle the millions of returns sent in each year. These systems use algorithms that look for abnormalities, particularly when your income seems insufficient to support your lifestyle. For example, if you earned $50,000 but donated $40,000, you'll probably set off some red flags. Similarly, if you're claiming a tax credit for a six-figure mortgage, but your income isn't enough to support a mortgage of that size, someone may decide your return requires a second look.

7. You're a millionaire

People who make $1 million or more a year are audited at higher rates than folks with lower incomes. And an audit gets more likely the higher you go; people with incomes of $10 million and up are often the most frequently audited. Which makes sense if you think about it. Who is worth more money to the IRS, the person who underpaid by $500 -- or the person who underpaid by $500,000?

An audit isn't the end of the world

Although seeing that IRS logo on an envelope when you check the mail can make your heart skip a beat, it's generally not as scary as pop culture makes it out to be. In many cases, an audit is simply due to some error on your return, not a problem with the math. And they don't always mean you'll owe more; some audits actually lead to a larger return, rather than a smaller one.

In either case, hang on to your tax documents for at least three years to ensure you're prepared if that dreaded letter hits your mailbox. You should also be aware of the audit protection policy for any tax prep software or companies you may use.

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