Although the number of taxpayer audits by the Internal Revenue Service (IRS) has been in decline, having decreased nearly 16 percent from 2015 to 2016 alone, certain characteristics of a tax return still increase a person's risk. Any taxpayer whose income is above $200,000, for example, has an audit risk of around 2 percent, while an individual with an adjusted gross income (AGI) of $50,000 to $75,000 has a risk of only 0.47 percent. A taxpayer whose AGI is between $1 million and $5 million, meanwhile, has a more than 8 percent chance of audit.
The IRS is also more likely to audit taxpayers who are self-employed, as these individuals tend to take more deductions for expenses. Those who claim home office deductions may be particularly susceptible to audit, as there is a high rate of abuse for this type of allowance. Relatedly, if a taxpayer's deductions are significantly higher than expected, that individual may receive an audit.
All taxpayers, regardless of situation, must ensure that all income and expenses are reported correctly. Taxpayers should be particularly precise regarding information reported on 1099s, W-2s, and similar forms, as the IRS can cross-check these and audit any return on which the numbers fail to match.
