What Are the Chances of Being Audited in 2020?

The likelihood of being audited by the IRS is relatively low, with only 0.63% of individual tax returns selected for audit in 2020, or fewer than one out of every 100 returns. This represents a significant decrease from the spike in audit rates observed in 2010.

Factors that Increase the Risk of an Audit

While the overall probability of an audit is low, certain factors can increase your chances of being selected:

  • High Income: Individuals with higher incomes are more likely to be audited, with those earning over $500,000 facing higher-than-average audit rates.

  • Unreported Income: Discrepancies between the income reported on your tax return and the amounts reported to the IRS by employers or other sources can trigger an audit.

  • Excessive Deductions: Itemized deductions that significantly exceed the average deductions claimed by taxpayers in your income range may raise red flags.

  • Self-Employment: Businesses operating primarily with cash, particularly those reporting losses, are more likely to be audited.

  • 100% Business Use of Vehicle: Claiming 100% business use of a vehicle, especially without another personal vehicle registered in your name, can draw IRS attention.

  • Hobby Losses: Attempting to portray a hobby as a business to claim business expenses can result in the IRS reclassifying the expenses as non-deductible hobby expenses.

  • Home Office Deduction: Home office deductions require strict adherence to the “regular and exclusive” use requirement, and deductions from individuals earning wages may receive increased scrutiny.

  • Business Meals, Travel, and Entertainment: These expenses must be carefully documented, including the business purpose and attendees, to avoid IRS scrutiny.

  • Earned Income Tax Credit (EITC): The IRS closely examines EITC claims due to a high incidence of errors and fraud.

  • Cryptocurrency Transactions: The IRS has increased enforcement efforts to address potential fraud in cryptocurrency transactions.

  • Early Withdrawals from Retirement Accounts: Unreported early withdrawals from retirement accounts that do not meet the criteria for tax-free treatment can trigger an audit.

How Far Back Can the IRS Audit?

Typically, the IRS has three years to audit tax returns. However, in cases of significant errors or fraud, they may go back further, though usually not more than six years.

What to Do If You’re Audited

If you receive an audit notice from the IRS, respond promptly and cooperatively. Most audits can be handled by mail, but complex audits or those involving significant amounts of money may require in-person meetings with an auditor. Consider consulting a tax professional for guidance, especially if the audit is complex.

Understanding the factors that can increase your risk of an IRS audit can help you ensure the accuracy and documentation of your tax return. While the chances of being audited are low, it’s important to be aware of the potential triggers and take steps to minimize your risk.

What Are Your Chances of Being Audited by the IRS?


What are my odds of getting audited?

But what are the actual odds of getting audited? Shockingly low for most people. The number of IRS audits has been declining for years. Today, an American’s overall chances of being audited are about 1 in 200.

Who is most likely to get audited?

The IRS looks at both higher-grossing sole proprietorships and smaller ones. Sole proprietors reporting at least $100,000 of gross receipts on Schedule C and cash-intensive businesses (taxis, car washes, bars, hair salons, restaurants and the like) have a higher audit risk.

What are the red flags for IRS audit?

Some red flags for an audit are round numbers, missing income, excessive deductions or credits, unreported income and refundable tax credits. The best defense is proper documentation and receipts, tax experts say.

How far back can the IRS go to audit you?

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.

Is the IRS audit rate normal in 2020?

Since 2010, the number of IRS audits has dropped by nearly half, as the audit rate slipped from 0.93% to 0.39% in 2019. IRS audit rate has dropped from 0.93% to 0.39% from 2010 to 2019 The IRS audit rate dipped to 0.2% in 2020 due to COVID-19. However, 2020 audit rates are not normal for the IRS.

What are the chances of being audited by the IRS?

Shockingly low for most people. The number of IRS audits has been declining for years. Today, an American’s overall chances of being audited are about 1 in 200. Moreover, three-quarters of all audits are correspondence audits in which the IRS sends the taxpayer a letter in the mail asking about one or two issues.

What are your chances of being audited?

In all, you have about a 0.6% chance of being audited. Things like high income and unusual deductions can increase your risk of getting flagged. No one wants to be audited. It’s a hassle, and it can be expensive. But I’m betting you never really think about your chances of being audited.

Will IRS audit rates go up soon?

However, due to increased IRS funding, audit rates might go up soon. The IRS plans to hire thousands of new revenue agents over the next several years so it can increase audits and other enforcement and collection activities, focusing on larger businesses and high-income individuals. What Happens When the IRS Audits You?

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