Any given individual income tax return has only a .84% chance of being audited by the IRS. That's equal to 1 return out of every 119. The odds seem pretty favorable, but those numbers are for the entire spectrum of income earners.
The IRS released a report that shows your odds of being audited go up when you make more money. For example, making $200,000 - $500,000 means your odds of being audited are at 1.54%. The rate overall seems pretty low, but when you realize this is almost two and a half times the likelihood for taxpayers in the $100,000 - $200,000 range (.64%) you start to understand the implications.
The lowest income earners aren't off much easier. Those making between $1 - $25,000 have a 1.01% chance of being audited, higher than the overall average. And those with no income (due to losses, loss carryforwards, etc.) have a 3.78% chance of being audited.
But the highest income earners are in the worst situation. Those making between $1 million - $5 million have about 1 in 12 odds of being audited (8.42%), and the highest bracket, earners making over $10 million, have 1 in 3 odds of being audited (34.69%).
So what's a taxpayer to do? Making more money means you're more likely to hear from the IRS. They have found that they get better enforcement results when auditing higher income taxpayers. Making less money (well, at least somewhere in the middle of earners) certainly reduces your likelihood for an audit, but you shouldn't have to make financial decisions based on the likelihood of hearing from the IRS.
As long as you properly report your information on your tax return, any request for information from the IRS should be easy to handle. Just don't be surprised that your increased income also brings with it the increased opportunity for receiving an IRS notice.
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