Getting Ready for a Tax Audit
Tax audit. It’s a phrase that can momentarily stop the heart of even the most even-keeled taxpayer. The thought of having our income taxes reviewed by the government and potentially having to pay an untold amount of additional taxes and penalties is frightening to most people.
Tax audits make even the most honest and straightforward people sweat and shake when meeting with auditors. Part of it is being in an unfamiliar territory with unknown consequences. Part of it is feeling helpless in the face of the government who can make you feel like they ultimately have complete power over your financial situation.
In reality, a tax audit is nothing to be afraid of if you have documented all of your claimed expenses and deductions and have followed the rules. We always encourage our clients to have proper help from a qualified tax advisor, particularly one that specializes in resolving complex tax problem cases.
In many cases, the IRS will request further information, often to back up a claim for a deduction or credit. This is frequently mistakenly referred to as an audit, but is not a formal or real audit, although it to could result in additional taxes, interest and penalties.
A real audit is a more in-depth process that could involve a visit from an auditor or may be simply a “desk audit”- where the auditor receives the information from the taxpayer by fax or mail.
IRS Income Tax audits can be the result of many different things and often do not imply that the taxpayer has done anything wrong. The IRS or State may be focusing on a certain type of deduction one year and request back up from everyone who has claimed a high dollar value deduction compared with their income.
IRS or State Tax audits can also be random. Ultimately, the government is simply trying to ensure that you are reporting your income and expenses accurately so that they receive the correct amount of tax revenue from you.
Getting ready for a tax audit should be an ongoing process. The golden rule is that you shouldn’t claim anything on your taxes that you aren’t willing and able to fight for and back up with documentation. Every deduction should be backed with receipts and other documents. All tax receipts should be kept with a copy of the return filed for at least seven years.
And, even if you have a professional prepare your taxes, make sure that you review them and understand the basics of what is being claimed. It will be you, not the tax professional, paying penalties and interest if your return is incorrect.
Tax audits can be scary but with a bit of ongoing preparation and organization, and an expert to represent you, they really are nothing to worry about.
Contact us for more information or assistance with your tax returns.
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