The words “IRS audit” are enough to strike fear into countless U.S. taxpayers across the country. After all, the IRS has the power to put people in jail, issue fines, and initiate asset seizures. However, as long as you’re reporting your income correctly and not inappropriately taking deductions, an audit really is no big deal—especially when you have a Certified Public Accountant (CPA) on your side. Even so, you may be curious about your odds of getting audited. Here’s a look at the latest numbers.
Individual Audit Rate
Individuals are audited more often than companies. Here are the audit rates:
- Individuals with self-employment income less than $25,000 who also claimed the Earned Income Tax Credit (EITC): 1 in 72
- Sole proprietors with gross income between $100,000 and $200,000 before deductions: 1 in 48
- Sole proprietors with gross income between $200,000 and $1 million before deductions: 1 in 64
- Wage earners making less than $200,000 who don’t claim the EITC: 1 in 364
- Gross income of more than $1 million before deductions: 1 in 23
- Farmers: 1 in 228
- International taxpayers: 1 in 19 chance of getting audited
The overall individual audit rate for 2017 was 1 in 161. Those most at risk of an audit fall into one of the following groups: high-wealth, international, small business/sole proprietors, or EITC claimers.
Business and Specialty Taxpayers
Business and specialty taxpayers have a lower risk of getting audited than individual taxpayers. Here’s a look at the numbers:
- S corporations (Form 1120-S): 1 in 358
- Small C corporations (Form 1120): 1 in 146
- Partnership returns (Form 1065): 1 in 260
- Employment tax returns (Forms 940 and 941): 1 in 568
- Gift tax returns: 1 in 130
- Estate and trust taxpayers (Form 1041): 1 in 971 chance of getting audited
It should be noted that, in recent years, the IRS has seen its budget slashed considerably. This limits the amount of resources the agency uses for field audits. Instead, the IRS has increasingly been relying on automated compliance activities to check for discrepancies in reporting. When a discrepancy is identified, a notice is sent to the taxpayer asking for an explanation. In 2017, automated compliance activities outnumbered audits 3 to 1.
The most effective way to minimize your chances of making a mistake with your taxes is to have a professional accountant at your side. Need help with individual and joint returns? Contact The Royce CPA Firm in Tucson at (520) 321-4626, or schedule online. We also work with businesses and nonprofits, with a focus on tax and wealth strategies for entrepreneurs.