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Lotto is a game of chance that you want to win. An IRS audit is one you don’t. And unfortunately, the odds of being audited are a lot higher than the odds of winning the lotto. The IRS won’t say how their victims are chosen. But they will tell you how to get noticed.
“There are some situations that may generate an audit more than others. Higher incomes, people that are self employed, or if your deductions are disproportionate to your income.”
-Mike Dobzinski, IRS
In 2008, IRS audits collected more than $56 billion from both corporations and individuals. Your average odds of an audit? About 1 in 100.
At least, if your income was less than $200,000. More than $200,000 and they jumped to nearly 3%. And if you were lucky enough to make more than a million, your odds jump to 5%: 1 in 20. See the IRS’s 2008 Tax Enforcement Results
But don’t assume low income means you’re automatically off the hook. The IRS also likes to call on cash earners like servers and hairstylist even if they’re not big fish.
Another likely target, the self-employed. Especially those who make mistakes on their returns, claim losses, or deduct far-fetched expenses. .
Now there’s an urban myth that those who file electronically also increase their audit odds. Not true:
“Some people think that if you file electronically that’s going to speed up the fact that you may get audited. It has nothing to do with it. Electronic filing is the best way to file. You’ll get your refund a lot faster and it’s also very accurate.”
-Mike Dobzinski, IRS
And by the way, just because you’ve cashed that refund check already doesn’t mean you’re out of the woods. The IRS can easily go back three years to ask questions about prior returns. They can go back forever if they think you haven’t been reporting income.