Nothing sends a chill up the spine like the words “IRS audit.” That’s why every year we hear from clients who want to know what the odds are that they will be audited. The IRS uses a variety of criteria to decide which returns will receive further scrutiny. Among the most common “red flag” is a tax return claiming deductions that are out of line with those of taxpayers at a similar income level.
While there is no guarantee that the Internal Revenue Service will or will not select your return for audit, the government has provided some helpful guidance in the form of the average deduction amounts claimed by “typical” taxpayers with different adjusted gross incomes. By comparing your own deductions with these averages you (or your tax preparer) may be able to identify areas in which your return may “stick out” and catch the attention of IRS auditors. The data was culled from tax returns from 2011.
To read the table, find the range of your adjusted gross income on the left. Then read across to see the average amount of deductions claimed by taxpayers in your bracket for the most frequently used deductions, including interest expense, state taxes paid, charitable giving and medical expenses. The far right column is the total of all itemized deductions, plus casualty and theft losses.
Adjusted | Taxable | Interest Expense | Taxes Paid Deduction | Charity | Medical Expenses Deducted | Total Itemized |
Under $15,000 | $2,734 | $7,414 | $3,137 | $1,443 | $8,350 | $15,014 |
$15,000-$29,999 | 9,461 | 7,346 | 3,249 | 2,127 | 7,838 | 15,092 |
$30,000-$49,999 | 21,841 | 7,436 | 3,988 | 2,287 | 6,943 | 15,422 |
$50,000-$99,999 | 47,720 | 8,768 | 6,235 | 2,881 | 7,375 | 19,311 |
$100,000-$199,999 | 99,561 | 11,266 | 10,852 | 3,889 | 10,002 | 26,832 |
$200,000-$249,999 | 174,065 | 15,216 | 18,083 | 5,703 | 16,814 | 38,814 |
$250,000 & above | 553,805 | 20,685 | 47,616 | 18,490 | 34,796 | 88,058 |
Certain situations may affect your deductions in relation to these averages. For example, some states do not have an income tax, thus the “taxes paid” amount may be lower than expected, since these states are included in the average. Also, the “medical expenses” deduction is one of the least frequently used, since only medical expenses over 7.5% of adjusted gross income can be deducted.
If your deductions in one or more categories exceeds the average, or if your total of itemized deductions is higher than the national average, don’t panic. It does not mean that you will automatically be audited. The IRS is a little more flexible than that. If you live in a state with a high income tax rate, the IRS makes allowances for a larger state tax deduction. But they also match up your mortgage interest expense claim with 1098 forms filed by banks and other lenders, so be very accurate when writing off your mortgage costs.
Still, there is no need to wave a red flag to get the attention of the IRS. Claiming deductions that are out of proportion to your income is a key factor in the selection formula the IRS uses to decide which tax returns will be audited. Make sure you follow the rules and keep scrupulous records to back up any claims you make. Better yet, engage an experienced tax advisor to assist you in sorting through what you can and cannot deduct.