Your Chance of Getting Audited Goes Up if You Earn This Much Income

Keep this number in mind as you file your tax return.

Each year, millions of Americans submit a tax return and call it a day. But among them, a very small percentage end up having their tax returns audited.

Now before we go any further, it's important to realize that in most cases, all a tax audit really means is that the IRS needs more information about your return. Maybe the agency has to verify a deduction you claimed on your tax return, and so it wants to see a copy of a receipt. Providing one could bring the matter to a quick close.

Meanwhile, if you're a higher earner, you may be worried that your income will render you more likely to end up having your taxes audited. But you can rest assured that unless your earnings are really high, you probably don't have to worry about increased odds.

Which tax-filers are most likely to get audited?

The U.S. Government Accountability Office did an analysis of audit rates for the 2019 tax year, and it found that the audit rate among filers earning $200,000 to $499,999 was the same as that for filers earning between $25,000 and just under $200,000. It was only when earnings jumped to $500,000 or more that the likelihood of an audit increased.

Based on this data, if you earn between $500,000 and just under $1 million, your chances of getting audited are about three times as high as they'd be if your income were to fall in the $25,000 to just under $500,000 range. But even so, the audit rate among filers earning between $500,000 and just under $1 million was only 0.53% in 2019.

Even if your income jumps to $1 million, as long as it stays under $5 million, your audit odds are pretty low. In 2019, only 1.02% of tax returns within that income range were subject to audits.

Now if your income is ultra-high -- meaning, above $5 million -- then your chances of being audited go up even more. But even so, in 2019, only 2.35% of tax returns with reported incomes of over $5 million got audited.

How to reduce your chances of getting audited

If the idea of a tax audit is scary to you, you should know that the best way to avoid one is to be honest when filing your taxes. If you earned $12,000 in capital gains in your brokerage account, report it. If you earned $50,000 from a side business, let the IRS know.

It's also helpful to claim deductions that are proportionate to your income. If you earned $200,000 last year but are claiming $80,000 in tax deductions, that looks a little suspect, since that's 40% of your income. But if you earned $800,000 and are claiming $80,000 in deductions, that's more feasible, since it's only 10%.

To some degree, there may not be much you can do to reduce your audit risk. If you have a very high income, the odds of the IRS taking a second look at your tax return are higher.

But if you're honest about what you put on your tax return and you maintain good documentation to back up any deductions you claim, a tax audit isn't something to worry about. You might have to answer some questions and go back and forth with the IRS for a bit of time, but if you have nothing to hide, then you shouldn't worry about getting in trouble.