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What are the odds of a tax audit these days?

| Sep 15, 2020 | Tax Law

Whether you run a business or have complicated investments, it’s normal to worry about the possibility of a tax audit — and the potential consequences. Tax laws have grown increasingly complex over the years, so the chances that you’ve made a mistake somewhere have also risen.

Take heart: The likelihood that you’ll end up facing an audit has decreased significantly over the last decade. The Internal Revenue Service (IRS) audited just .45% of all individual tax returns in 2019, which is less than half of the 1.11% it audited back in 2010. That means about 1 out of every 220 people were audited last year. Ten years ago, your odds of being audited were 1 in 90.

What’s driving the decline in audits? For the most part, it’s all about staffing and budgets. The IRS has neither the money nor the time to do as many audits as it once did. The agency’s 2018 budget, for example, was just $11.4 billion. While that sounds hefty, it’s about 20% less (adjusted for inflation), than what the agency had to work with back in 2010. The IRS also lost about 30,000 full-time workers in the last decade, many of whom were in the compliance enforcement division.

Just the same, some key mistakes can still get you audited. Misreporting dividend income or distributions from your retirement account, for example, are big “red flags” that will trigger an audit.

Since mistakes on your taxes can easily lead to penalties and interest, don’t hesitate to seek help if you are facing an audit or have any kind of tax controversy arise.