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Chances of Being Audited by the IRS in 2023: What You Need to Know

Chances of Being Audited by the IRS in 2023: What You Need to Know
Ines Zemelman, EA
10 January 2023

If you're a taxpayer, you may have wondered about your chances of being audited by the Internal Revenue Service (IRS). While the audit rate for individual taxpayers has generally been declining in recent years, it's still important to understand the factors that can increase your risk and take steps to reduce them.

In this article, we'll provide a comprehensive guide to the chances of being audited by the IRS in 2023, including data on audit rates, factors that can increase your risk, and tips for reducing your chances of being audited.

Audit Rates: What You Need to Know

According to data from the IRS, the audit rates for individual taxpayers have been steadily declining in recent years. In 2020, the audit rate was just 0.45% for individual taxpayers, down from 0.59% in 2019.

However, it's worth noting that audit rates tend to vary based on income level. For example, in 2020, the audit rate for taxpayers with income above $10 million was 20.7%, compared to just 0.45% for those with income below $200,000.

Factors That Can Increase Your Chances of Being Audited

While the overall audit rate for individual taxpayers is low, there are certain factors that can increase your chances of being audited.

One factor to consider is the complexity of your tax return. If you have a lot of deductions or credits, or if you own a business or have multiple sources of income, you may be at a higher risk of being audited. Similarly, if you have high levels of income, you may be more likely to be audited, as the IRS tends to focus on higher-income taxpayers.

Other general factors that can increase your risk of being audited include: failing to report all of your income, claiming deductions or credits that you're not entitled to, and failing to file your tax return on time.

Top Triggers of an IRS Audit in 2023

Here are some top triggers of IRS audits:

  • Large deductions: Claiming a high amount of deductions relative to your income may raise red flags with the IRS. For example, if you are a small business owner and you claim $100,000 in deductions on a return that reports $200,000 in income, this may be seen as a red flag.
  • Inconsistencies: If there are discrepancies or inconsistencies between your tax return and the information provided on other documents (such as a W-2 or 1099), the IRS may investigate further. For example, if your tax return shows a different amount of income than what is reported on your W-2, the IRS may want to verify the accuracy of the information.
  • Self-employment income: If you are self-employed, you may be more likely to be audited because you have more flexibility in reporting your income and expenses. For example, if you are a freelance writer and you report a large amount of income on your tax return, the IRS may want to verify that you have the proper documentation to support your income and expenses.
  • Home office deduction: Claiming a home office deduction can be a red flag for the IRS, especially if you are claiming a large deduction or if you have a history of claiming this deduction in the past. For example, if you claim a home office deduction of $20,000 on your tax return, the IRS may want to verify that you are eligible to claim this deduction and that you have the proper documentation to support it.
  • Cash-based businesses: If your business primarily deals in cash, you may be more likely to be audited because it can be harder to track and verify income and expenses. For example, if you own a small convenience store and you primarily accept cash payments from customers, the IRS may want to verify that you are accurately reporting all of your income.

NOTE! The IRS commonly uses a variety of factors to determine which tax returns to audit, and many returns are selected at random.

Tips for Reducing Your Chances of Being Audited

To reduce your chances of being audited by the IRS in 2023, it's important to be accurate and thorough when preparing your tax return. Make sure to report all of your income and take advantage of any deductions or credits that you're entitled to.

It's also a good idea to keep good records of your financial transactions, as this can help you support your deductions and credits if you are audited. Finally, be sure to file your tax return on time and pay any taxes that are due.

Conclusion

In conclusion, while the chances of being audited by the IRS in 2023 are relatively low for most taxpayers, it's still important to understand the factors that can increase your risk and take steps to reduce them.

By being accurate and thorough when preparing your tax return and keeping good records, you can minimize your chances of being audited and ensure that you're in compliance with tax laws.

FAQ

1. What amount triggers an IRS audit?

The IRS does not publicly disclose the exact amount that triggers an audit. However, in general, the IRS is more likely to audit tax returns with higher amounts of income or deductions.

2. What are IRS audit red flags?

Some common audit red flags include claiming excessive charitable donations, failing to report all income, and taking large deductions for business expenses. Other red flags include not reporting all tips, not accurately reporting self-employment income, and claiming the home office deduction.

3. What are the odds of getting audited?

The odds of being audited vary depending on several factors, such as the amount of income you report on your tax return, the type of deductions and credits you claim, and whether you own a business. According to IRS data, the overall audit rate is relatively low, with less than 1% of individual tax returns being audited in a given year. However, the audit rate is higher for individuals with higher incomes and for those who claim certain deductions or credits.

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Ines Zemelman, EA
Founder of TFX