The tax audit. Many people are afraid at the mere mention of one so they strive to file their taxes very correctly and strictly in order to avoid it. While it is important to prepare your taxes as accurately as possible—and use tax preparation services to help—you can still be audited anyway.
That’s why we’re going to discuss more about what an audit is and why they happen, along with certain ways to minimize your risk of audits. If you do get audited, though, remember that you can use our audit representation services to help you navigate it successfully.
What Is a Tax Audit?
A tax audit does not have to be a disaster. All it usually means is that the IRS wants to perform a closer examination of your tax return, including the income and deductions. This may mean your tax return contained an unusual feature or red flag, but it may not. For example, the IRS may have chosen your return to audit because:
- Your audit was chosen by a computer system searching for statistical differences from the usual numbers on tax returns. “The usual numbers” are themselves derived from other audits. Your tax return may not have anything wrong with it, and the audit may reveal that.
- Your audit is related to the tax return of another party who is being audited, such as an investor or business partner, and there is nothing particularly wrong with your tax return.
Once your tax return is selected for these or other reasons, an experienced auditor will review it using established practices. If they find any true problems with it, they will send it to an examination group.
The final decision in your audit can go one of three ways . In the first outcome, your supporting documents and explanations may show that your return was accurate, and the IRS leaves your tax return as is. In the second outcome, the IRS may propose one or more changes to your return. If you agree to it, you will enter into an agreement to pay any taxes owed.
The third outcome occurs when you disagree with proposed changes. That would require you to set an appointment with an IRS manager or to go through a formal appeal.
How to Minimize Risk of Tax Audit
To give yourself the highest chance of avoiding an audit, you should always be perfectly honest on your tax returns and complete them by the book. How do you do that? Here are some additional tips :
- Always file a return. Even if you earned no income or know you won’t owe taxes, file a return to avoid being contacted and questioned. Use your return to preemptively explain your situation and avoid an audit.
- Keep your return neat, legible, and free of errors. Messy returns with obvious errors on them are prone to audits. Use software or a tax preparation professional to avoid these mistakes.
- Report everything. If you think a small bit of income is unimportant, you may be wrong. The IRS may already know about it, and an auditor may question why you didn’t mention it.
- Be honest about expenses, especially if you have a business. You may be called on to support your claimed expenses with documentation. Also, if you claim higher charitable contributions than are typical for your income bracket, that can trigger an audit.
- Don’t round up or down. Audits are often triggered by statistical improbabilities. For example, if you earned $4,137 on a stock sale but only report $4,000, that round number can raise eyebrows.
Unfortunately, if you truly earned zero taxable income because of business expenses—or report a loss—you may be audited, even if your tax return is accurate. Be sure to keep your receipts and accurate records, just in case.
Hire TaxHelp MD for Tax Audit Help
If you are honest and accurate with your tax returns, along with keeping good records, you should dodge tax audits most of the time. However, if you are being audited, you can schedule an appointment with the Tax Doctor for tax audit help. We will prepare you for the process. Contact us now for professional audit representation or to help you pay off your back taxes.