Everyone has heard the statistics about tax audits and how it is very unlikely to receive one in a given tax year, but over your lifetime it is more likely than not that you will get audited. Whether you are currently being audited, you want to prevent an audit, need help with an audit, or just want general information on an audit; you will find everything you need below.
An IRS tax audit is when the IRS tries to confirm the facts of your tax return to determine its correctness. Everyone has heard that the statistics of getting selected for an audit are against you. It is true that the statistics are low, in fact, it is about 1 in 75 people will get audited. Statistically speaking this means that about 80% of all people do get audited once in their working lifetime. The statistics are different for differing income levels and types of employment.
When it comes to getting chosen for an audit it is not entirely random. People who do get selected actually do have a high likelihood of having made a mistake or made fraudulent claims on their tax return. The key driving force for determining who gets audited starts with an IRS computer. The IRS computer will give each tax return a score, the higher the number the higher the potential it has for an audit. Mostly what the computer does is find tax returns with high expenses and low income. It will find that if you reported a low income and a mortgage payment of about the same, it will most likely give a high score because the likelihood of you being able to pay for regular expenses after the mortgage with your income is highly unlikely. After the computers provide scores to the tax returns, these tax returns are then delivered to a person for checking. Typically about 1/10th of these returns end up in an audit after the human review.
An audit is the process in which the IRS determines if you have correctly reported all income and took the right deductions. It is your responsibility to prove to the IRS that what you filed was indeed correct and you must provide supporting documents for the majority of it. During the audit the IRS will make a determination if you did the proper reporting or not and if not they will assess you additional taxes to pay. A quick fact is that the IRS actually wins 80% of all audits, mainly because the taxpayers cannot show proper supporting documents. Therefore the main cause for the IRS assessing additional taxes is because of bad record keeping, not because of tax payers trying to cheat the system.
There are three different types of audits. The types of audits are mainly determined by the amount of revenue you reported. These three types of audits are: correspondence, office and field.
The most common type of audit. This type of audit comes by mail and is done by mail. Typically the IRS will ask you to mail certain documentation to them supporting certain items that you filed on your tax return. Normal transactions that they ask for are stock transactions, sale of real estate documentation, and details on other specific itemized deductions. Often, these types of audits happen because there is a difference from 3rd party documentation.
The office audit is a meeting set up with the IRS that the IRS determines the time and specific documents that you should bring with you for support. The IRS will send a letter setting a time and date or requests that you call them up to setup an appropriate time. Mainly in these types of audits the auditors will only examine "significant" items on your tax return. During the IRS audit, the auditor may ask difficult questions about unlisted items that were on the original letter, you can tell them that you are not ready or prepared to talk about those items and they will drop them and bring them up in the second visit. Most of the time, it is good to consult with a tax professional such as a CPA or Tax Attorney so they can give you some needed advice so you say the correct things and give proper support.
This is when you receive a notice that the IRS wants to come to your home or business for an audit. These are typically the most serious types of audits; the IRS top auditors are used in these types of audits. If you receive one of these audits, most likely you have earned well over 100K in your business or self-employment. If you receive one of these audits it is highly suggested that you have a tax expert on your side to help with the audit to ensure things flow smoother.
When being audited it is important to know the rules of the game. Tax auditors are experts are reading people and uncovering things not covered in the initial audit notice. Having a tax professional on your side can significantly increase the odds of you getting a better outcome on your audit and can actually end up saving you money. An audit is like a game, if you are not aware of the strategies, it is best to have a professional on your side to help.
Representing yourself before the IRS is a bad idea. Remember, the auditor has done this many times before but you have no experience with tax audits. When you turn to Tax Debt Pros for help with your federal tax audit the process is much more likely go smoothly. As highly qualified tax professionals we are able to anticipate any issues that could come up and prepare for them ahead of time. We are also keenly aware of how to answer their questions honestly but in a way that won’t raise any red flags. With our assistance you can minimize any taxes owed and get an overall better outcome.
Even if you’ve filed your tax returns on time each year and feel you’ve done nothing wrong, the IRS may find an unexpected error. Audits are sometimes random but usually the IRS specifically selects which taxpayers to audit. If they feel your return is likely to provide an opportunity to collect additional taxes they will come after you, so make sure you’re prepared. For audit help in the South Jordan, UT area you can count on, call us at 801-878-0363 now.