First, don’t panic. Audits are relatively rare, as fewer than 1% of taxpayers grouped by income level will get that dreaded notice on IRS letterhead.
Per the linked statistics, for the average American who earned $50‒70K per year, only about half a percent of those tax returns got audited. If you made between $25‒50K or between $75‒100K, less than half a percent of those returns were under audit. Only 6.66% of tax returns reporting an eight-figure adjusted gross income were audited as well. Additionally, the IRS has less funding and about one-third fewer agents on board compared to less than a decade ago, so this keeps audit figures down.
To cut to the point right away, your chances are being audited by the IRS are quite slim. There are often many red flags that are likely to trigger an audit, but even then, you’re still more likely to get an examination notice than an actual field audit in which an IRS agent shows up at your door demanding to examine your workspace and files.
An IRS Letter Is Not Likely to Be an Audit
You might think that you’ve been selected for an audit because a letter from the IRS came in the mail that demanded to know why a line item on your tax return was reported a certain way or that they computed your tax bill for you. A notice is not the same thing as an audit.
Most IRS notices are computer-generated with a “CP” prefix. Notices in the CP series will be automatically mailed to you when changes are made to your IRS account, such as making a payment or having all or part of your tax refund seized to pay down your current balance. These notices are sent with the intent to catch discrepancies and underreporting based on information they already have on file, such as if you forgot to report that 1099 you received for giving a side hustle a try or you mistyped your salary as $56,000 when $65,000 was reported on your W-2.
Requests for more information are often referred to as a “desk audit,” but your contact with the IRS is still largely minimal, particularly if your notice pertains to math or input errors.
Common Audit Red Flags
Despite having a pretty low chance of ever being audited, it’s helpful to know which criteria are the most likely to trigger an audit:
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