Make Under $400,000 a Year? Here’s Why You Shouldn’t Worry About an Increase in Tax Audits

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The IRS is looking to increase audit activity. Read on to see why that probably won’t affect you. 

Filing taxes can be a daunting process. You have to gather paperwork, run a lot of numbers, and hope you aren’t making any mistakes that land you on the IRS audit list.

But the reality is that tax audits aren’t really the scary thing the media might make them out to be. Often, a tax audit is really just the IRS requesting more information about a given return.

If you claim a $2,000 deduction for small business equipment, for example, on your tax return, the IRS might send you a notice asking for proof of that deduction. Send in copies of your receipts, and the matter is closed.

Still, most people would rather not have their taxes audited. And so you may be worried that the IRS’s recent batch of funding is going to increase your risk of an audit. But unless you’re a higher earner, you can expect that your chances of getting audited are going to stay the same.

Tax audits are increasing, but not for the typical American

The IRS recently got approved for $80 billion in funding as part of the Inflation Reduction Act. And the agency has said repeatedly that it plans to use some of that money for enforcement — meaning, going after taxpayers to ensure they’re not cheating the agency out of money it’s entitled to.

You may be worried that as the IRS ramps up audits, your chances of having your tax return further scrutinized will increase. The good news, though, is that the IRS is not planning to increase audit rates among average earners.

The IRS even said on its own website, “The agency is focused on pursuing high-income and high-wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe. As a result, the IRS has no plans to increase the audit rate for households making less than $400,000.”

What if you’re a higher earner?

Clearly, the IRS is not looking to target taxpayers earning $70,000 or $80,000 a year when it ramps up audit rates. But what if you earn $500,000 a year? Should you be worried? The answer is, not necessarily.

One thing you should realize is that if you’re honest on your tax returns and report all of your income, your chances of getting audited will be minimized. The IRS is less likely to go after you for more money if you’re already disclosing your income and making an effort to pay taxes on all of it.

What’s more, even if the IRS does audit your taxes, it doesn’t mean you’re going to end up owing more money or getting fined. The IRS might question a certain deduction you’re claiming. But if you have evidence to back it up, then there’s no real problem. At most, all that’s happened is that you were inconvenienced by having to respond to an IRS notice.

The purpose of tax audits is to make sure that everyone pays their fair share of taxes. If you’re already doing that, then chances are, you don’t have anything to be concerned about.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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