There's no reason to ever pay the IRS more tax than you actually owe. But if you have the proper documentation for your deduction, don't be afraid to claim it. If the deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. If you receive a 1099 showing income that isn't yours or listing incorrect income, get the issuer to file a correct form with the IRS. A mismatch sends up a red flag and causes the IRS computers to spit out a bill. IRS computers are pretty good at matching the numbers on the forms with the income shown on your return. The IRS gets copies of all of the 1099s and W-2s you receive, so be sure you report all required income on your return.
Just understand that the more income shown on your return, the more likely it is that you'll be hearing from the IRS. We're not saying you should try to make less money - everyone wants to be a millionaire. The audit rate drops significantly for filers making less than $200,000: Only 0.65% (one out of 154) of such returns were audited during 2016, and the vast majority of these exams were conducted by mail. Report $1 million or more of income? There's a one-in-17 chance your return will be audited. IRS statistics for 2016 show that people with an income of $200,000 or higher had an audit rate of 1.70%, or one out of every 59 returns. Although there's no sure way to avoid an IRS audit, these 17 red flags could increase your chances of unwanted attention from the IRS.Īlthough the overall individual audit rate is only about one in 143 returns, the odds increase dramatically as your income goes up. Math errors may draw IRS inquiry, but they'll rarely lead to a full-blown exam. That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors, including your income level, the types of deductions or losses you claim, the business you're engaged in, and whether you own foreign assets. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes. So the odds are pretty low that your return will be singled out for review. Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.70% of all individual tax returns in 2016.