Whenever you file your yearly taxes, there is a possibility that the Internal Revenue Service may audit your tax return. The IRS carries out standard procedures to detect discrepancies or errors among taxpayers. If you are faced with an audit, you will need detailed information to help you understand your situation. Below are some of the common questions that people ask about IRS audits.
How Will I Be Notified of an IRS Audit?
You will be notified about an IRS audit by writing through a verified letter in your mail. The IRS does not notify people about an audit through calls. In addition, they never use emails to notify individuals or businesses about an audit.
What Should I Do When Faced With an Audit?
If you are selected for an audit, ensure you read all the information sent to you in the audit notification letter. The letter and additional information request packet will provide all necessary details about whether you or your business are being audited, the year or years under review, and who your IRS auditor is. After determining what information the IRS needs, ensure you gather all the requested supporting documents and records. You may need to submit records from vendors, banks, and businesses you have worked with, payroll records, pay stubs, invoices, medical expenses, and more.
How Many Years of Tax Returns Will the IRS Audit?
The IRS usually audits tax returns from the past three years. However, most audits will focus on the past two years. The IRS may choose to audit tax returns over three years old in certain circumstances, such as when a taxpayer omitted more than 25% of their income. In criminal audits, the IRS can even check your tax returns dating back nine years or more.
How Long Will the Audit Take?
The time it takes to conduct an audit will vary based on the case. The time taken will fluctuate depending on the severity of your tax reporting error, whether or when the correct information gets to the IRS, and the communication between the individual or business being audited and the IRS officer.
When Should I Reply to an IRS Audit?
After you receive your notification letter from the IRS, you have 30 days to reply to the initial letter from the IRS. Ensure that you take the appropriate steps early enough. The IRS may not provide extensions unless you have excellent reasons for your delay. If you are working with a tax professional, they can advocate for additional time with the IRS agent.
Why Was I Chosen for an Audit?
You may be flagged for an IRS audit for different reasons. Some audits are due to random checks by the agency, but you have a low chance of being audited in this manner. Incorrect tax filling data or discrepancies in your tax forms, such as a discrepancy between employer filings and reported earnings, unreported cash transactions, or an imbalance of your tax returns, can trigger an audit.
You may also be audited if you file incomplete or incorrect returns, are self-employed, or earn over $500,000 or less than $25,000. In addition, you may be flagged for an audit if you have a large number of cash transactions or claim an inconsistent number of deductions.
Can I Handle the Audit Independently?
Most audits are usually sent by mail. Generally, the IRS is asking for copies of your credit card statements, bank statements, real estate closing documents, and canceled checks. These are documents that you have or can get pretty easily. While a tax professional can provide vital insight and guidance, you should be able to handle most mail audits on your own. However, if the IRS requests a face-to-face audit, it is advisable to talk to a seasoned tax professional beforehand. Afterward, you can decide whether to go on your own or hire a professional.
If you are faced with an audit and decide to hire a tax professional to help you, they will ensure that your books are put in order, so you are better equipped to handle any tax issues. They can also help to file your back taxes, assess your tax liabilities, and represent you by dealing directly with the IRS. When you work with a professional, you will never have to worry about representing yourself before the IRS since everything will be handled by an expert with in-depth knowledge and industry experience.