This Shocking Factor Might Increase Your Chance of Getting Audited

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Audit rates are fairly low across all tax-filers. But read on to see which group of filers has a greater chance of getting audited. 

Have you ever seen a tax audit play out in the movies or on TV? If so, the scene probably involved a scary-looking IRS agent with a backup team of goons storming someone’s office, confiscating their files, and flashing a pair of handcuffs.

The good news is that the typical audit is nothing like that. The majority of tax audits are conducted by mail, and they usually involve having to respond to a letter from the IRS asking for more information or asking you to agree to an adjustment to a tax return.

Even if the IRS wanted to barge into individual tax-filers’ homes and demand to see copies of paperwork, the agency does not have the manpower to conduct those types of audits on a large scale. And if the agency is trying to recover, say, $500 from a given tax-filer, it’s not worth the effort of sending someone to their door. So you can generally rest assured that if your taxes get audited, the process won’t be as frightening as you might think.

Meanwhile, the U.S. Government Accountability Office did an analysis of audit rates for the 2019 tax year. Not shockingly, it found that filers earning $5 million or more had the highest likelihood of getting audited, with filers earnings between $1 million and $5 million being the next most likely group to be audited.

But you may find it surprising to learn that audit rates among tax-filers earning under $25,000 were more than twice as high than audit rates for filers earning between $25,000 and $499,999.

A lower income might increase your audit risk

You might find it hard to believe that having a lower income would increase your chances of getting audited. After all, when you don’t earn that much, how much income could be hiding?

But the reality is that if you’re not reporting a lot of income, the IRS might start to ask why. And your chances of getting audited might also be higher if you claim the Earned Income Tax Credit, which is unique in that it’s fully refundable — meaning, you can receive the full value of it even if you don’t owe the IRS any tax.

You may also get pegged for an audit if you report a low income, but you claim high deductions relative to your income. Granted, this holds for everyone — if your deductions look disproportionate, it could raise a flag.

But let’s say you’re reporting an income of $24,000 and you’re also claiming $4,000 as a deduction for mortgage loan interest. At that point, the IRS might question how it is that you’re able to pay $4,000 in mortgage interest alone (keeping in mind that interest is just a portion of your total mortgage payment) when that’s almost 17% of your income right there.

What to do if you’re a lower earner wanting to avoid an audit

If you’re a lower earner, there may only be so much you can do to limit your audit risk. You shouldn’t pass up the Earned Income Tax Credit if you’re entitled to it, for example. That credit could put a lot of money in your pocket, and you deserve to have that money to cover your bills.

That’s why the only thing you can really do to lower your audit risk is to be completely honest on your tax return. Report every penny you make and only claim tax breaks you know are legitimate. If you stick to that plan, you might manage to stay off of the IRS audit list, despite not earning a very high wage.

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