Recently, we published a list of 15 red flags that may influence whether or not the IRS will audit a tax return. You may recall this one:
Running a small business
If you run a cash-intensive business (bars, taxis, hair salons) or are self-employed, the IRS will be more likely to scrutinize your return than they do other types of businesses. The IRS thinks it can get more bang for its audit buck by examining S corporations, partnerships and limited liability companies.
How much you make reveals your chances of being audited
If you want an even clearer picture of who gets audited, here is a chart from the annual Data Book published by the IRS. It displays how the odds of you being audited depend on your income.
5.26% | No income
.93% | $1K – $29.9K
| .54% | $25k – $49.9K
|.56% | $50k – $74.9K
| .52% | $75K – $99.9K
.65% | $100K – $199.9K
1.75% | $200K – $499.9K
3.62 % | $500k – $999.9K
6.21% | $1M-$4.9M
10.53% | $5M-$9.9M
16.22% | $10M +
Source: IRS Data Book 2014 via USA Today
Sutton’s Law and the odds of being audited
As the chart demonstrates, except for those who say they have no income, the chances of someone being audited is directly tied to their income. The more you make, the more likely you’ll be audited.
If you are familiar with Sutton’s Law, this should come as no surprise. The “law” is named after the bank robber Willie Sutton, who is reputed to have replied to a reporter’s question, “Why do you rob banks?” with an answer Sutton denied saying, but became so famous, he used as the title of his memoir*: “Because that’s where the money was.”
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