Well, I would say about 100% if your return is chosen.
Strictly in terms of numbers, however, according to the IRS itself only .084% of all individual returns were audited in 2015.
The overall individual audit rate is only about one in 119.
While the reality is that your odds are rather low, a recent Kiplinger article reveals that the odds of your return catching the attention of the Service increases based on various factors.
The article is titled "9 IRS Audit Red Flags for Retirees."
It would be wise to review these red flags and further minimize the chances that you will attract very special and unwanted attention.
For taxpayers who are "math challenged" has some good news. Although math errors may draw an IRS inquiry, they rarely trigger an audit.
Not surprisingly, the odds go up significantly as your income increases in a given year. For example, if you sell a valuable piece of property or get a big payout from a retirement plan.
So, just how much does higher income result in higher scrutiny?
IRS statistics show that folks with incomes above $200,000 had an audit rate of 2.71%, or about one out of every 37 returns. If you report an income of $1 million or more, then the odds jump to one-in-13.
The reverse is also true.
The audit rate plummets for those reporting less than $200,000, with just 0.78% or one out of 128 of those returns audited. Even at that, the majority of these exams were conducted by mail.
Make sure you report all required income on your return.
Because the IRS is good at matching the numbers on the forms with the income shown on your return.
A mismatch sends up a red flag and causes the IRS computers to spit out a bill. If you receive a tax form showing income that is not yours or listing incorrect income, then you need to ask the issuer to file a corrected form with the IRS.
Here are some other red flags as identified in the original article:
Taking Higher-Than-Average Deductions.
If the deductions on your return are disproportionately large compared with your income, the IRS may pull your return. For example, a costly medical expense could alert the IRS. This is not a problem if you have the proper documentation for your deduction. As a result, you should not be afraid to claim the deduction for fear of an audit.
Claiming Big Charitable Deductions.
If your charitable deductions are very large compared to your income, you will attract attention.
Likewise, if you fail to get an appraisal for donations of valuable property or fail to file Form 8283 for noncash donations over $500, then you are a bigger audit target. Retain all of your supporting documents, such as receipts for cash and property contributions made during the year.
Failing to Take Required Minimum Distributions.
This is a big no-no.
Those age 70½ and older must take RMDs from their retirement accounts by the end of each year, but there is a grace period for the year in which you turn 70½ that allows you to wait until April 1 of the following year.
The IRS will check to make sure you are taking and reporting at least your required minimum distributions (RMDs).
The penalty for not taking your RMD is equal to 50% of the shortfall.
Also, IRS looks at early retirees or others who take payouts before reaching age 59½ and who do not qualify for an exception to the 10% penalty on these early distributions.
What if you are still employed at age 70½ or older?
If this is you, then you can delay taking RMDs from your current employer's 401(k) until after you retire (this does not apply to IRAs).
The amount you must withdraw each year is based on the balance in each of your accounts as of December 31 of a prior year and a life-expectancy factor from the IRS.
No one wants to be audited by the IRS.
Taking the steps identified in the original article will go a long way to keeping you in the clear.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger (February 2016) "9 IRS Audit Red Flags for Retirees"