Imagine you are getting home from work and go to check your mail. Your heart may immediately sink if you notice an audit letter from the IRS.
Being audited is a fear that many taxpayers may have. It can be intimidating knowing that you are the focus of the IRS’s attention. Fortunately, with a bit of preparation and hard work, an audit does not have to be a stressful event.
What triggers an audit?
There is no way to guarantee that the IRS will not audit you. The best thing that taxpayers can do to limit the odds of being audited is to be aware of common red flags that the IRS looks for.
Some items that may trigger an audit can be relatively simple mistakes. Things like math errors or forgetting to include small amounts of income are easy mistakes to make and may be easily corrected.
The IRS may also target you simply because of the type of filer that you are. People who earn over $100,000, are small business owners or are self-employed have a higher chance of being audited. Additionally, if you have significantly less in reported income than your peers, the IRS is more likely to take notice.
What happens after receiving an audit notice?
An audit is simply the IRS requesting validation that your reported income and deductions are accurate. If you have good documentation and can verify that the information you submitted is correct, the audit may be relatively easy to resolve.
For smaller matters, the audit may be conducted via correspondence with the IRS. These correspondence audits may involve the IRS either asking you to supply more information or to notify you that you have unpaid taxes. If the auditor wants more info, they may send you an information document request.
More complex situations may result in an in-person audit with the IRS. These audits can take place at an IRS office (office audit) or at your home or business (field audit). Because these types of audits are more severe, it is important to be prepared prior to the meeting. Collect the relevant documentation and read up on relevant tax laws that may be applicable to your situation.
If you know someone who has been through an audit, it can be helpful to ask them about the audit process. Knowing what to expect before entering the meeting can help you feel more confident when meeting with the IRS.
The more complicated someone’s tax situation is, the more likely it is that they may be audited by the IRS. In situations where you may be facing an in-person audit, it can be a good idea to consult with an accountant or a tax attorney to help guide you through the process.
