3 FAQs about tax audits
As we prepare for the new year, taxpayers throughout the country are likely getting things in order for their tax filings. While gathering these documents, some may find themselves wondering what happens if they mess up. Will it lead to an audit? The following will delve into three of the most common questions that arise regarding tax audits, including when a mistake can result in a visit from the Internal Revenue Service (IRS).
Question #1: What triggers an audit?
Although there is not a simple answer, there are a couple of red flags that increase the risk of an audit. Those who make more money are at a greater risk. Taxpayers who report over $1 million in income on their tax filings have a one in 31 chance the IRS will flag their return for an audit. The risk goes up as the income gets higher.
The IRS is also known to review deductions claimed on a tax return. If the deductions are high or do not match up proportionally to the reported income, the risk of an audit increases. Due to a large number of deductions available to small businesses, small businesses and their owners can also be at a great risk for an audit.
Question #2: What happens during an audit?
The IRS generally notifies a taxpayer of an impending audit through a mailing. They do not correspond with a phone call, email or text message. Any correspondence using one of these three methods stating it is from the IRS is likely a scam.
There are three types of audits: correspondence, office or field. The correspondence audit generally involves communications through mailings. An office audit may require scheduling an appointment to meet with an IRS agent at an IRS office while a field audit involves an auditor coming to your place of business to conduct the audit in person.
Question #3: What should I do if I receive notification of an audit from the IRS?
It is important to get your paperwork in order. The IRS will likely ask for documentation to support your tax filings.
Whether going through an individual or business tax audit, the IRS allows the subject of the audit to seek legal representation. This can help to better ensure your rights are protected throughout the audit process.