Your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals two interesting and reassuring facts about the risk of an IRS audit.
One of these facts is that audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been declining steeply over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller workforce.
Another fact is that IRS audits happen most often to the super-rich. The statistical chance of being audited increases dramatically for people of higher income levels.
For example, filers that made near the average U.S. income only had a 0.4 percent chance of being audited. That frequency doubled once annual incomes reached $200,000, and doubled again at incomes greater than $500,000. By the time a person reports $10 million in income, they have a one-in-five chance of being audited, according to IRS statistics.
That means that 99.6% of the time if you are concerned about taking a deduction. You should take it, because the worst case scenario is that you will pay the tax (and maybe some penalty) if you can’t prove that you took a legitimate deduction. What is usually more important is to save all of your receipts.
Tip: Make copies of ALL of your receipts so they don’t fade out, in case of an audit. You will have a readable copy. Consider storing your receipts in large one gallon sandwich bags to protect them from the elements, especially floods. (Also a nice tax deduction from your sandwich bags).