If you’ve ever received a letter from the IRS or other entity stating that you’re being audited, you know how stressful it can be. The thought of having to deal with a government agency along with the possibility of owing money, is enough to make anyone feel anxious and overwhelmed. However, it’s important to remember that an audit doesn’t necessarily mean that you’ve done anything wrong. In fact, the vast majority of audits are conducted simply to verify that the information on your tax return is accurate. In this article, we’ll provide you with some guidance on what to do if you find yourself facing an audit, so that you can navigate the process with confidence and ease.
Why Do You Get Audited?
There are several reasons why someone might get audited. A few of the most common reasons include:
Random Selection: Sometimes, individuals are selected for an audit without any specific reason or suspicion. This is known as a “random audit,” and it’s a way to ensure that taxpayers are reporting their income accurately.
Errors or Inconsistencies: If your return contains mathematical errors or inconsistencies, it may raise red flags and trigger an audit. This is why it’s important to double-check your math and ensure that all of your figures are accurate.
Unreported Income: If you fail to report all of your income on your tax return, whether intentionally or accidentally, you may be audited. This can include income from self-employment, rental properties, investments, or any other source.
High Income: If you earn a high income, you may be more likely to be audited. This is because the IRS tends to focus its resources on auditing taxpayers who have the highest potential for noncompliance.
Business Expenses: If you are self-employed or own a small business, you may be audited to ensure that your business expenses are legitimate and necessary.
Large Deductions: If you take large deductions on your tax return, especially in relation to your income, it may raise suspicions with the IRS. This is especially true if your deductions seem unusually high for your profession or industry.
What Happens When You Get Audited
The exact process and procedures can vary depending on the agency you’re being audited by and the reason for the audit, but here are the general steps involved:
You’ll Be Notified
The first step in an audit is receiving a notice from the agency conducting the audit. The notice will outline the reason for the audit and request certain documents and records.
When you receive notice of an audit, it’s important to understand who the audit is from. Audits can come from the IRS, the State, non-resident state tax authorities, local tax departments, or even be for personal property taxes.
Once you have received the audit notice, you will need to gather all of the requested documents and records and prepare for the audit. This may include reviewing your tax returns, organizing financial records, and consulting with a tax professional.
During the examination phase, the auditor will review your tax returns and supporting documents to verify that you have reported your income and deductions accurately. The auditor may ask questions or request additional documentation if there are discrepancies or inconsistencies.
After the examination is complete, the auditor will provide you with a report outlining their findings. This report will detail any adjustments that need to be made to your tax returns and any additional taxes, penalties, or interest owed as a result of those adjustments.
Appeal or Payment
If you disagree with the auditor’s findings, you may have the option to appeal the decision through an administrative process or in court. If you agree with the findings, you will need to pay any additional taxes, penalties, or interest owed.
What To Do If You Get Audited
If you’re being audited, seeking counsel and representation from a tax professional is typically the best course of action. An experienced tax professional can help you navigate the audit process and ensure that your rights are protected.
Tax professionals have extensive knowledge of tax laws and regulations, which can be complex and confusing for the average taxpayer. A tax professional can provide you with expert advice on how to respond to the audit including how to prepare for it, what documentation to provide, and help you respond to any inquiries or requests from the auditing agency and advocate on your behalf.
They can also help protect your rights during the audit by ensuring that you are treated fairly and that your legal interests are represented. In addition to that, they can work to minimize any penalties and interest that may be assessed as a result of the audit, and help you negotiate a payment plan if you owe additional taxes.
If you find yourself in the situation of being audited, remember that you don’t have to face it alone. At Minton CPA & Associates, we have years of experience providing tax representation services to clients facing audits. Our team of experienced tax professionals can provide you with the expert advice and representation you need to navigate the audit process with confidence and ease. Contact us today by calling 757-546-2870.