Good news: your odds over getting an IRS audit are low. The latest report on the agency's enforcement activities show it audited 0.8% of all returns filed by individuals. Yet, your odds vary based on your income and if you're self-employed and file a Schedule C.
If you work for yourself and file Schedule C with your return, your audit odds are a bit higher, but this doesn't mean you can get away with wholesale cheating on your taxes.
The IRS uses sophisticated software to choose which returns to audit. Your IRS audit odds will go way up if you: don't report all your income or take deductions that don't make sense. For example, the IRS closely watches the mileage deduction because it's ripe for abuse. A big red flag would be claiming an inflated percentage of business miles.
The best way to handle an IRS audit is to avoid it in the first place by filing on time, filing honestly and paying any taxes you owe. If you're one of the unlucky few who do have to face an IRS audit, be sure you have the proper documentation to back up your claims.
Building off the example above, if you claimed the mileage deduction above and faced an audit, you better be prepared with a mileage log. This must include:
The government agency will also want to know your total number of miles you drove during the year. This includes business miles, commuting miles and personal driving (drives other than your commute and business). By far, the best way to prove your mileage deduction is by keeping contemporaneous records. (photo credit: Ray Tsang)