The thought of being audited by the IRS strikes fear even in the calmest individual in the United States. It is quite natural because humans usually fear the unknown. But the latest trends in IRS audits reveal that an IRS audit is nothing to be fearful of. According to the latest statistics, the IRS audited only 0.86 of all individual tax returns in the previous year. It is reported as the lowest within the last decade. In fact, this figure is supposed to further go down due to budget cuts faced by the IRS. The IRS has reportedly stated that there are fewer audits because they have fewer auditors.
Budget cuts have resulted in the IRS losing more than 2,200 revenue agents since 2010. On the other hand, the IRS usually audits high taxpayers and self-employed individuals. If you don’t belong to one of these categories, your chances of being audited by the IRS are quite low this year. But even if you are audited by the IRS, there are many things that you can do to survive such an audit. This article provides information on what should you do if you are audited by the IRS.
The best way to limit your chances of being audited by the IRS is to avoid any common mistakes on your returns. In fact, common mistakes may raise red flags – which may prompt the IRS to audit your returns. For example, a typing error such as typing $1,500 when you actually need to report $5,100 or a missing income from a 1099 may raise red flags. In fact, filling your return accurately is very important to avoid being audited by the IRS. There are three types of audits conducted by the IRS. The most common audit is via an email. In fact, more than 80{ee2a2ced2e83a70af3b12a5f5f4bc88f1c095ae1846c54ee750c7ec9c020c045} of individuals are audited on paper – via an email. A face-to-face audit with an IRS officer is quite rare. But there are instances where individuals have faced such interviews, too. Most of the time, you may get an email with a question asked by the IRS. You have two options to answer their query. One is to agree with them and send a check or provide evidence to the contrary. In fact, face-to-face audits are quite expensive to the agency. Hence, such interviews are usually reserved for cases where significant issues are suspected.
Your best defense against an IRS audit is to maintain good tax records. Never put anything on your record which you can’t substantiate with a receipt or document. Individuals who run home businesses and claim for refundable credits should be extra cautious when preparing their tax returns. That may increase your odds of being audited by the IRS. Another important factor to remember is to save all your documents and tax returns in a safe place. Remember that an audit for 2017 may actually happen in the year 2020. You may require all the documents to present at the audit in case you are audited by the IRS.
Just because you receive an audit notice in the mail, you shouldn’t panic. Don’t assume that the notice is the final word of the IRS. The IRS is also prone to making mistakes. For example, the IRS recently told a client that he owed $9,000, but after investigating, the bill was less than $800. The IRS hadn’t considered the tax payments that the client had already made. You should respond to any IRS correspondences quickly. But don’t make any payments without making a thorough investigation. These are important things to consider in case you are faced with an IRS audit.
What is the worst that could happen? This is the question that everyone wants an answer. If you can’t show the records requested by the IRS agent, will you go to jail? This is not the case with every individual who defaults in preparing his/her tax return. In fact, only extreme cases of tax evasion and willful negligence put someone in jail. But an IRS audit can be expensive for most people. Most of the time, the IRS may adjust your return in such a way that it:
. Includes income that you have omitted
. Removes any deduction that you have claimed but cannot substantiate.
You may have to pay the tax dues and the interest accumulated throughout the years. The IRS won’t assert any penalty if you cooperate with them during the auditing process. If not, the IRS may choose to assert a 20{ee2a2ced2e83a70af3b12a5f5f4bc88f1c095ae1846c54ee750c7ec9c020c045} accuracy-related penalty under Section 6662. On the other hand, your costs may increase if you have to hire a tax attorney around Dayton Ohio or accountant to re-organize the paperwork. In case the IRS comes up with a figure that you owe, you shouldn’t neglect to pay the amount. The agency has the authority to put liens against your income and assets in order to collect the tax and penalty.
Tax experts advice that you maintain clean records at all times. That will help avoid any IRS audit down the road. It is important that you gather the paperwork such as invoices, credit card receipts, sales slips, bank statements, canceled checks, proof of payments, and mileage logs. In fact, the mileage logs are very important if you have deducted a lot of miles. The IRS may find it difficult to the miles that you have claimed without the proper mileage log or a GPS record of mileage incurred. The right paperwork may help further reduce your tax bill in case you are audited by the IRS. Hence, it is very important to keep your paperwork intact at least for 3-4 years after filing your tax returns. These are important things to consider when you are facing an IRS audit.
The very thought of being audited by the IRS may strike fear even in the calmest individual. There are many factors to consider when you are faced with an IRS audit. The above article provides information on should I be concerned when I am audited by the IRS.
