The Internal Revenue Service (IRS) is responsible for enforcing tax laws and ensuring that individuals and businesses pay their fair share of taxes. As part of this responsibility, the IRS conducts audits to verify the accuracy of tax returns. While the prospect of an audit can be daunting, it is important to remember that not all audits are created equal. Some audits are minor and only involve a few questions, while others can be more extensive and require a significant amount of documentation.
Types of Audits
The IRS conducts two main types of audits:
- Correspondence audits: These audits are conducted through the mail and typically involve a few simple questions about your tax return. You will be asked to provide documentation to support your answers, and the IRS will make a determination based on the information you provide.
- Field audits: These audits are conducted in person at your home or business. The IRS auditor will review your tax return and supporting documentation in detail, and may also ask you questions about your income, expenses, and other financial matters.
Who is at Risk of Being Audited?
The IRS uses a variety of factors to select tax returns for audit, including:
- High income: Individuals with high incomes are more likely to be audited than those with lower incomes.
- Complex tax returns: Tax returns that are complex or contain unusual deductions or credits are more likely to be audited.
- Errors: Tax returns that contain errors are more likely to be audited.
- Random selection: The IRS also selects a random sample of tax returns for audit each year.
What to Do If You Are Audited
If you receive an audit notice from the IRS, do not panic. The first step is to contact the IRS and schedule an appointment. You will need to provide the IRS with all of the documentation that they request, and you may also need to answer questions about your tax return.
How to Avoid an Audit
There are a few things you can do to reduce your risk of being audited:
- File an accurate tax return: Make sure that your tax return is complete and accurate, and that you have all of the necessary documentation to support your deductions and credits.
- Keep good records: Keep all of your tax-related documents for at least three years. This includes receipts, invoices, and bank statements.
- Be honest: If you make a mistake on your tax return, be honest about it. The IRS is more likely to be lenient with taxpayers who make innocent mistakes than with those who intentionally try to cheat.
What to Expect During an Audit
The IRS auditor will review your tax return and supporting documentation, and may also ask you questions about your income, expenses, and other financial matters. The auditor will then make a determination about whether you owe additional taxes.
If you do owe additional taxes, you will have the opportunity to appeal the auditor’s decision. You can also choose to pay the additional taxes in installments.
While the prospect of an audit can be daunting, it is important to remember that not all audits are created equal. Some audits are minor and only involve a few questions, while others can be more extensive and require a significant amount of documentation. If you receive an audit notice from the IRS, do not panic. The first step is to contact the IRS and schedule an appointment. You will need to provide the IRS with all of the documentation that they request, and you may also need to answer questions about your tax return.
Should I Worry About an IRS Audit?
FAQ
Am I in trouble if I get audited?
Is getting audited a big deal?
What are the odds of getting audited?
What happens if you are audited and found guilty?
Should I be worried about being audited by the IRS?
If you are ever audited by the IRS, it doesn’t mean you did something wrong. Sometimes all you need to do is explain your situation, or fix a math error. But if you’re worried about being audited, make sure to avoid these pitfalls. 1. Not reporting all income
Do you get audited if you don’t make money?
Some taxpayers are audited even if they don’t make much money and they are completely honest. Sometimes, you’re just unlucky and your tax return randomly comes up for an audit. If you are one of the unfortunate few who are subject to an IRS audit, don’t panic.
What if I don’t get a tax audit?
If you want to increase the odds that you won’t receive an audit, there are several red flags to look out for. Most of them involve not running afoul of a software system that the IRS calls the Discriminant Inventory Function, or DIF. This system compares your returns with others filed in your income bracket.
Do you have to tell the truth about an IRS audit?
In other words, the IRS is simply double-checking your numbers to make sure you don’t have any discrepancies in your return. Sometimes state tax authorities do audits, too. If you’re telling the truth, and the whole truth, you needn’t worry. Nothing is inherently sinister about an IRS audit or state audit.