Hi friends. We are excited to share, What if I get Audited by Sara Bailey this week. Thank you Sara for providing this great post for us!! We really enjoyed it and appreciate the time you took for us!!
Few phrases are as terrifying to an American taxpayer as “getting audited.” You might not know anyone who’s been audited (or maybe you just don’t think you do), but audits are more common than many think. There’s an image of an intimidating pair of FBI-esque agents showing up like the Uncle Sam mafia at your door when an audit happens, but that’s not how it works. The good news is that audits are fairly common and not as daunting as they are made out to be. It’s extremely rare that anyone with the IRS will meet with a person they’re auditing.
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WHAT IF I GET AUDITED?
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The vast majority of tax audits happen by mail. Over one-third of those audited are alerted solely by a letter. Remember that the IRS will never call you or email you about an audit. Technically called “correspondence audits,” they don’t necessarily mean you owe money. Often, the IRS needs more documentation for your return or has questions. You can often reply by mail and resolve the situation.
The Scary Stuff
The “scary” kind of audits aren’t actually that terrifying. In rare cases, you might need to meet with an IRS representative at a local office. This occurs when the IRS needs more documentation than what you can provide in a correspondence audit, or did provide in a correspondence audit.
If you do get a correspondence audit first (which is almost always the case), it’s best to have a CPA help you prepare a reply. That’s the best way to avoid an in-office tax audit. You always have the right to bring a CPA or attorney with you to an in-person audit, though whether or not it’s necessary depends on each situation.
“Field audits” are usually the foundation for why we’re so scared of audits. These audits are the most intense and invasive, and require an agent to come to your home or business. Field audits are only needed for huge red flags, or if there are so many questions about your return that a correspondence or in-office audit isn’t enough. The odds of the average taxpayer getting a field audit are very, very slim. However, the higher your tax bracket, the likelier you are to be audited.
What Now?
Audits aren’t a tool for the IRS to bully you into paying more in taxes. Outcomes of audits vary widely, and sometimes the IRS is satisfied with the additional information you provide during the audit. Sometimes your tax return might need to be changed, and you can either contest it or agree to it. Of course, contesting a return will mean more interaction with the IRS. Still, most audits result in a change.
Unsurprisingly, it’s rare that an audit will result in you getting a higher return. Even with millions in undistributed tax refunds every year, that’s simply not a priority of the IRS (that responsibility falls on you and your CPA).
It’s natural to worry about an upcoming in-person audit
It’s wise to have professional representation via your CPA or attorney, but many taxpayers choose to go alone. Preparation is key. Have all of the documentation they’re requesting and more; your CPA will have this handy, and if you use 1099 or W2 software, it will be readily available to you whenever you need it. If you’re a business owner, an audit is one reason why having an Employee Identification Number or EIN is so important. Your EIN helps the IRS identify your business and keeps your business finances and your personal finances separate in the eyes of the government and other entities, which means your personal assets are at less risk.
However, only present them with the exact documentation they ask for during the audit—no more, and no less. Be professional and polite while keeping arguments at bay. The IRS agent you’re meeting with during these audits has no control over the outcome. They’re simply an information-gatherer.
It’s common to get defensive, but if you do find yourself going down that path, avoid the biggest mistake of all: Don’t justify an error on your return because you’ve “always done things that way.” The IRS can audit your return for three years post-filing date, so you don’t want to point out the error of your ways. Stay calm and be courteous, but only offer up the specific information they request.
Take a look at some other articles by Sara Bailey we think you will love:
When a Senior’s Spouse Dies, Finances Can Get Overwhelming
How To Live Well Without Sacrificing Your Savings
How Parents Can Build A Strong Financial Future For Their Children and Themselves
Author Bio:
Sara Bailey
Sara Bailey hopes that by sharing her journey of grief she can provide insight and hope for others who experience loss. She created TheWidow.net as a way to share her unexpected journey of losing her husband and learning to be the best parent (and person) she can be while nurturing her grief.
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