Many business owners and individuals fear an audit when doing their taxes. They are worried that they’re going to make a mistake and that the IRS is suddenly going to swoop in, looking for evidence of fraud and potentially handing out financial fines – or even making arrests.
But how likely is that to happen? Statistically speaking, audits are very infrequent. As a general rule, roughly one out of 100 Americans will face an audit. But it can be significantly smaller than even that 1%. For example, the rate was just 0.63% in 2020. More than 99% of people who filed their taxes never heard from the IRS regarding an audit at all.
What makes the audit more likely?
One important thing to note is that these statistics do not exist in a vacuum. Everyone doesn’t have the exact same chances of being audited.
After all, the IRS is looking for triggers. Maybe there are mistakes or math errors on your paperwork. Maybe you’re a high-wage earner, so the IRS has more to gain with a successful audit. Perhaps you have made excessive deductions that are far above the norm. Or perhaps you have been making complex financial transactions, such as investing in cryptocurrency.
In other words, the IRS looks at many tax returns for low earners who do not have complex paperwork and never even considers an audit. But for high earners who do have more complex tax problems, deductions or income streams, an audit may be more likely. If you find yourself dealing with the IRS, it’s quite important to understand all the legal options at your disposal.