Does the fear of a tax audit sometimes haunt your dreams or keep you up at night? If so, you’re not alone. Nobody really wants to deal with an audit, especially since even a simple mistake can expose you to fines, interest and other penalties.
Well, this may be welcome news: The Internal Revenue Service has been forced to cut way back on the number of audits it does each year. The odds of being selected for an audit have been steadily declining over the last decade, largely because the IRS doesn’t have the staff or the budge to keep up with so many.
In 2010, roughly one out of every 90 taxpayers could expect to have the taxman at their door with an audit. In 2019, just one out of every 220 taxpayers suffered through an audit.
None of this means, naturally, that it’s “open season” for tax evasion. There are still a lot of red flags that can trigger an audit, especially inconsistencies between reported income with your investments or pensions and what shows up in the IRS records. You don’t want to take chances.
You also don’t want to assume that any audit you do face will be easy. The fact that the IRS has reduced its number of audits means that they’re also more likely to aggressively pursue collection efforts, fines and other penalties against anybody that is audited when they can find mistakes or unreported income.
If you’re facing an audit, find out what steps you should take next.