Why Your Audit Fears Are Overblown (Based on Actual IRS Data)
By: Noah Rosenfarb, 3rd Generation CPA & Founder of Wealthrive
For decades, the tax industry has used fear to keep clients compliant. At Wealthrive, we use data. The latest IRS numbers prove that the “threat” of an audit for a prepared entrepreneur is at a historic low. The data shows that audits are rare, mostly automated, and easily defensible with the right records.
The Real Numbers: Odds Are in Your Favor
Despite the headlines, actual audit activity has dropped off significantly in 2023 and 2024 after a brief bump. The overall average audit rate for 2014-2022 was just 0.40% – a 1 in 250 chance.
But your actual risk depends heavily on your income:
- The “Sweet Spot” ($50k – $500k): If you earn between $50,000 and $500,000, your audit risk drops to a steady, rock-bottom 0.1% or 1 in a thousand.
- The Surprising Reality: You are actually 4x MORE likely to be audited if you earn between $0-$25k than if you earn between $200k-$500k.
- Why Low Income gets Audited More:
- Fraud Risk: IRS data shows high fraud rates with credits like the Earned Income Tax Credit (EITC), which bumps the audit rate for claimants to 0.7%.
- Lifestyle Viability: The IRS knows it’s hard to live on <$25k a year. Reporting such low income raises a red flag that you might be understating income or overstating expenses.
The Digital Reality: Correspondence, Not Confrontation
The biggest fear is an IRS agent showing up at your home or business. This is a myth.
The Reality: Approximately 80% of all audits are “Correspondence Audits.” You don’t meet an agent. You get a letter asking for proof of a specific item, you mail or upload the documentation, and you get a decision.
Whatever Your Income, Defense Wins
The most important stat isn’t your odds of getting audited, but your odds of winning.
- The General Rule: Across almost every income category, only about 10% of people walk away from an audit paying $0 extra tax. In 90% of cases, you will pay more.
- The High-Wealth Exception: The highest audit risk is for those making $10M+ (~4% rate). Yet, they walk away with a “No-Change” verdict 50% of the time. Why? Because they have sophisticated teams like Wealthrive to defend them.
Noah’s Final Word: How to Join the “No Change Club”
The data proves that audits aren’t about luck; they are about preparation. The best way to avoid unnecessary stress and join the 10% who pay zero extra tax after an audit is simple:
- Keep Good Records.
- Save Your Receipts.
- Save Your Documentation on the Cloud.
When your records are airtight and you have professional representation (the “Wealthrive Buffer”), an audit is nothing more than a clerical task.
Stay Disciplined,
Noah Rosenfarb, CPA
Founder, Wealthrive
