If there’s one thing many of us don’t want to see in our mailbox, it’s a letter from the Internal Revenue Service. Even worse, we don’t want to get a letter from the IRS informing us that we are subject to a tax audit.
While you can never guarantee the IRS won’t audit you, understanding a few facts about IRS tax audits during the tax filing process may help ease your fears. Here are some reasons not to spend a lot of time worrying about it this tax season.
1. Your audit risk is likely very low.
If you are in the middle- or lower-income range, and your taxes are relatively straightforward, your chances of being audited by the IRS are fairly low. In fact, from 2014 to 2022, the IRS only audited 0.40% of individual returns filed. However, during the same timeframe, the IRS audited 7.9% of individual returns filed by taxpayers with total positive incomes above $10 million.
As you can see, when choosing who to audit, the IRS tends to target high-income earners. Taxpayers who are above-average earners are more likely to be audited because higher-income taxpayers tend to have more complex returns, and the IRS typically collects more money from them, which can increase their audit risk.
2. A tax audit doesn’t automatically mean you’re in trouble.
While it’s true that the IRS can audit people suspected of doing something wrong, that’s not always the case. As part of the audit process, the IRS audits a random portion of the taxpaying public every year. You can be selected purely as a matter of chance, even if you did everything right.
In other cases, discrepancies in your return can be an audit trigger and put you at higher risk. If the information on your tax return doesn’t match up with the data the IRS received from another source, such as your reported taxable income from Form W-2, the IRS may consider that an audit red flag and initiate an audit. But if it’s just a simple math error or typo, you shouldn’t have to worry too much — the IRS might simply ask you for additional documents to fix things on their end or request an amended return.
3. IRS tax audits generally go back two or three years.
When you file multiple income tax returns over the years, you may wonder what would happen if the IRS audited an old return. Would you be able to find the necessary tax forms and remember all the details about that tax season?
Fortunately, you don’t need to worry about audits on tax returns from a decade ago. According to the IRS, most tax audits are regarding returns filed within the last three years. If they find a substantial error, they may choose to go back further than three years. But even then, they seldom go back more than six years.
4. You can reduce your chances of an audit.
Certain items on your tax return may attract the attention of the IRS and make you a more likely target for a tax audit. Some examples of potential audit triggers include:
Business losses that are actually hobbies: As an example, let’s say you raise horses or dogs and take a loss every year. In this case, the IRS may disallow it because your “business” is only classified as a hobby in their eyes.
Deductions and income tax credits for unusual amounts: If you claim you give a large portion of your income to charity through non-cash contributions, the IRS may want to examine your situation more closely.
Business deductions: The IRS may take particular interest in unusually large travel or entertainment business expenses.
Large casualty losses: You can only deduct losses not reimbursed by your insurance company, so if you write off a large casualty loss, the IRS may want to look closer at the situation.
Despite this, don’t be dissuaded from taking a home office deduction or casualty loss you qualify for because you’re afraid of a tax audit. Just be aware that the IRS may want to investigate certain items more closely and keep your records in good shape in case they do.
Similarly, the IRS is less likely to audit returns that are free from mistakes. Using TaxAct® can help in this area. Following the interview questions in our tax software and inputting all the correct information will help you easily prepare a complete and accurate return. To give you even more peace of mind, TaxAct® offers Audit Defense1 to provide audit protection services for your income tax return. During the filing process, you can take advantage of our Audit Defense offering. If you do and the IRS audits you down the road, an experienced audit professional will respond to inquiries from the IRS and state taxing authorities on your behalf.
5. If the IRS audits you, don’t panic.
Some IRS tax audits are different from what you might expect. The IRS may just want additional documentation or a response about a particular item. In this case, you should reply as quickly as possible and move on.
If the IRS requests an office or field audit, you can gather your information and represent yourself if you are comfortable doing so. You also have the right to choose someone to help. If you file your income tax return using TaxAct, you can take advantage of Audit Defense provided by Tax Protection Plus1.
You have certain rights as a taxpayer during an audit. Besides the right to representation, you also have the right to know why the IRS is requesting information, to make an audio recording of an interview with notice, and not to be repeatedly examined for the same information.
The bottom line
Receiving a letter from the IRS can be scary, but your chances of getting audited when filing a complete and accurate return are pretty low as an average filer. However, if you’re worried, there are some steps you can take to help lessen your chances of an audit. Careful, mistake-free filing can decrease your audit risk, and maintaining accurate records can help you confidently navigate an unexpected audit. Remember, if faced with an audit, it’s best to remain calm, respond promptly, and know your rights as a taxpayer to ensure a fair outcome.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
1 See Audit Defense provided by Tax Protection Plus (PDF) for further details of services and requirements. May not apply to certain forms and credits. Certain customers may not qualify for services based on past tax audit history, residency, or other factors. Audit Defense is not insurance. Audit Defense is subject to terms and conditions (PDF) located on Tax Protection Plus’s website.
TaxAct, Inc. gets fees from some third parties, including Tax Protection Plus, that provide offers to its customers. This compensation may affect what and how we communicate offers to you. TaxAct is not a party to any transactions you may choose to enter into with Tax Protection Plus, does not itself offer legal or financial advice, and disclaims any liability arising out of such transactions. Please see the third parties’ websites for full terms and conditions.
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