According to the IRS, An audit is a review/examination of an organization’s or individual’s accounts and financial information to ensure that information is reported accurately following tax regulations and that the stated amount of tax is correct. Sometimes, receiving a tax audit can be scary, and individuals may require legal help. This article will give you some valuable knowledge for handling tax audits.
Three Types of Audits
Audits are classified into three groups based on their severity. Most audits are minor, and according to press sources, more than 75% of audits are done through the mail. Generally, tax audits are nothing too severe to the extent that you should be scared.
Firstly, you could receive letters. Routine problems such as improper, arithmetic, or missing documents are frequently resolved through correspondence.
The field audit is the most thorough of all audits. An IRS agent will visit your home, company, or accountant’s office to inspect documents and files to ensure that your tax return data is correct.
Typically, office examination audits occur. An office examination is planned in a local IRS branch. They will determine if you submitted all your revenue and that your deductions are legal.
In most cases, the IRS will notify you by mail, and according to the IRS, you will never encounter audits over the telephone. When you disagree with any of the decisions taken by the IRS, we strongly advise you to get legal advice from one of our tax professionals. Please don’t wait and start a case with us. You can contact us to begin your examination.
How will the IRS conduct my audit?
The IRS conducts audits by mail but could also do an in-person interview to check your records. The discussion may occur at an IRS facility, taxpayer’s house, workplace, or accountant’s office (field audit). Remember that the IRS will contact you via letter first. The IRS will include all contacting instructions and information in your mail.
If we do your audit by mail, our letter will require further information concerning specific items on your tax return, such as earnings, spending, and assets. If you are overloaded with books or records for shipping, you can arrange a face-to-face audit.
Common Myths About Audits
Tax audits have become fiction because of television productions and movies. Many individuals are terrified by the word audit. They aren’t as dramatic as what you see on the screen. It’s a lot more clinical procedure.
Some widespread misunderstandings regarding tax audits include that they exclusively target the rich, that certain deductions would trigger an audit, and that professional tax filers are audit-proof. To elaborate, the IRS functions similarly to companies with randomized selections and uses statistical data to determine who to select for an audit. Some returns are picked randomly, while others are chosen because they appear out of the norm.
It is statistically accurate that the greater your income, the more probable you will be audited, but it makes an insignificant difference. In 2017, the IRS audited less than 1% of tax filers with less than $500,000 yearly income. 71% of those who made less than $25,000 filed taxes.
Prepare your responses to IRS questions.
Prepare a comprehensive response to the points raised by the IRS in the letter/document you received in advance of a postal audit. A comprehensive report is essential to draw up professionally since little mistakes can cause significant harm during a tax audit.
Prepare for the IRS officer/agent meeting for office and field audits. Gather all the information the IRS asks for and be ready to deliver to them. Prepare for IRS queries, such as those about unexplained bank deposits or increased income. The IRS agent will also inquire about your employment, family, and outside enterprises. You’ll need to be prepared to provide an account of your year’s activities.
What If I’m Unable to Pay?
Penalties and tax deficiencies can make your tax bill unmanageable, but a payment plan is available. You can apply to the IRS website for a monthly payment arrangement, after which monthly dues can be set up as automated payments from a debit account.
In addition, the IRS has a reputable ‘fresh start program’ that helps individuals with tax assistance. But unfortunately, these people owe a significant amount of money to the IRS. This initiative is a reaction by the federal government to the IRS’s unscrupulous methods, which utilize compound interest and financial penalties to penalize citizens with outstanding tax debt.
The IRS Fresh Start tax program can assist individuals who owe far more than they can afford to pay. Taxpayers who apply and are found to be qualified can drastically decrease their federal tax obligation. In some cases, the fresh start program has managed to help some people cut a large majority of their debt.
Should I Hire a Professional?
Experts believe it is up to you whether or not to engage a professional to represent you. However, many argue it is worth investing in all except the easy audits. If you opt to hire a tax professional, look for registered agents, certified public accountants, or attorneys specializing in audit representation. In addition, some tax businesses charge a fee for audit defense as a form of insurance policy in case you are audited—tax specialists. I may be on retainer to assist you with navigating.
Remember that you have rights when the IRS audits you, in which case a tax professional can help. Your tax consultant should send a written paper of your rights with the initial contact notification. These include the right to professional treatment by the IRS auditor and the right to representation. If you disagree with the IRS, you may also file an appeal with the IRS or the courts.
