There’s one word that taxpayers fear the most. The word “audit” can cause a person to break a sweat.
In 2020, the Internal Revenue Service (IRS) audited fewer taxpayers than years before. Taxpayers will still get audited, but what are the chances you might get audited?
You must know what is an IRS audit. An IRS audit doesn’t always mean there’s an issue. There are a few things to keep in mind if you get selected for one.
Read this article to learn what happens when you get audited.
What Is an IRS Audit
The IRS conducts audits to check tax returns to make sure they are valid. The IRS can select an individual or an organization for an audit. The audit can focus on the filer’s account and financial information.
The auditor will also make sure the amount you paid to the IRS is accurate. The auditor will also make sure you properly claimed deductions and credits. If there’s an issue, the IRS will notify you.
Why Are You Selected for an Audit
Yes, it’s true that the IRS might audit someone if red flags are present. The IRS might audit someone even if there are no problems.
Red flags on your tax return include unusual or strange deductions. These include deductions for business expenses. If you deduct a high amount for business entertainment, the IRS might want to do an audit.
There are other reasons that can lead the IRS to select you for an audit. Did you claim the Earned Income Tax Credit? If you did, chances are the IRS will look at your return closely.
The IRS might select you for an audit if it thinks you left certain items from your deduction. You might be on their list if your deduction has a high potential for mistakes.
You must be careful to avoid reasons why the IRS might want to audit you. Make sure you report your W-2 wages. You need to report interest earned.
The IRS uses different methods to select someone for an audit. This agency might use random selection and computer screening.
They can use a statistical formula to select returns. They will compare returns against “norms” for similar returns.
If your returns have issues or transactions with other taxpayers, the IRS might seek to audit you. This might be the case if you have business partners whose returns were selected for an audit.
What Happens When You Get Audited
Congrats! You’re selected for an audit.
The IRS will notify you by mail. They’ll never inform you of one by phone. Be cautious if the IRS calls you as it might signal a scam.
The most common ways the IRS manages audits are by mail or through an in-person interview. If the IRS chooses to do it by mail, they’ll send you a letter. It’ll contain instructions and contact information you’ll need to proceed with the audit.
The IRS can conduct the interview at an IRS office or at the taxpayer’s home. Other locations can include the taxpayer’s place of business or the accountant’s office.
If you get a request by mail, you may be able to request a face-to-face audit. This is a good idea if you have a lot of books or records relevant to your case.
Are there any documents the IRS will ask for? The answer to this question will depend on your case. The IRS will provide you with a written request for the specific documents they’ll need.
They may accept some electronic records. These might include the ones you got from tax software.
Remember, you must keep all records you used for your tax returns. The law states you must keep them for at least three years.
After the Audit
There are three scenarios you might find yourself in after the audit. The IRS might not find any issues, so they will not ask for changes. This is the ideal scenario.
The IRS might propose changes. If you agree with the changes, you’ll sign the form. You’ll also pay the amount that’s due.
Make sure to read the IRS letter in its entirety. It’ll outline the payment options.
What if you can’t pay the amount? You do have the option of asking the IRS to delay collection.
Don’t disregard the IRS letter even if you can’t pay the amount you owe them. If you do this, the IRS might begin collection actions. Then they will seize your property and assets.
If you don’t agree with the IRS audit findings, you can dispute them. Contact the IRS and inform them of your decision. You can hire a tax attorney to assist you with this process.
How Long Does an Audit Take
The IRS audit process timeline varies. Different factors determine how long it can take to complete it.
The factors include the type of audit being conducted and the complexity of the issues. It can also come down to the availability of information requested. Your agreement or disagreement with the findings can affect the timeline as well.
Want to get more information about the IRS audit time frames? Click on https://silvertaxgroup.com/irs-audit-timeframes-guide/ to get more information.
Are You Being Audited by the IRS
If you’re selected for an IRS audit, there’s no need to panic. Now that you know what is an IRS audit, you know what to expect.
Use this guide to learn how to survive an IRS audit. You can get peace of mind after the audit is over.
Make sure to explore the rest of our blog to continue reading more great articles.