An IRS audit leaves anyone breathless. However, understanding what an Internal Revenue Service audit is and how it works might put some of your fears to rest. At the end of the day, this way you will know what to expect from the IRS audit procedure and hopefully how to avoid it.
Now, you should know that not all audits are the same. Some are more serious and important than others. Therefore, we could say that identifying what type of audit you are facing will also help you succeed.
Are you ready to delve into the tax mysteries of the IRS? So, let’s get started! Take a deep breath and find out everything you need to know about IRS audits.
What is an IRS audit?
An IRS audit is nothing more than a review of your tax account information. Through it, the tax agency will verify that you are providing accurate information and that your tax returns follow the applicable tax laws. In other words, through an audit, the IRS certifies that what you are declaring does not contain errors. Simply put, the IRS audits people to minimize tax evasion. Audits are sometimes random, but there are cases where they are ordered on a reasonable basis. If a taxpayer files a suspicious return, the agency may do an audit to verify that what he is paying is really what he owes to the federal government.
The procedure the IRS will use in an audit will depend on the type of tax violation and the level of seriousness or importance of the potential tax law violation.
An audit in writing that uses postal mail as a means of communication. In this case, the taxpayer will receive a letter from the IRS. Generally, this letter indicates that there is an outstanding debt. Why could this happen? Well, due to a mathematical error in the declaration or the omission of income, for example, a W-2 form. There are two decisions the taxpayer can make upon receiving this letter: agree with the IRS and pay the bill (which will include taxes, interest, and the penalty) or disagree with the debt and dispute it.
How to avoid an IRS audit?
There are certain ways to avoid an IRS audit. How? Basically, eliminating the reasons that lead them to perform an audit in the first place:
- Be careful not to make mistakes in the calculation. Try to use a good tax filing program and, if possible, review the information several times.
- Be transparent. You must report all your income to the IRS. Check that none have been left out of your return to avoid problems.
- Do not claim donations that you have not made. You should always have supporting documents. Otherwise, you will have a hard time in the audit.
- If you’re an independent contractor, don’t try to hide your real income. If you report losses over and over again on Schedule C, you will set off IRS alarms!
- Keep business expenses under control. Remember that purchases must be ordinary and necessary for the type of business you do.
- Don’t try to fool the IRS. Many taxpayers use the home office deduction to pay fewer taxes. If you don’t work from home, don’t!
- First of all, precision! Try not to overdo it when you round figures and keep all your supporting documents on hand.
- When in doubt, hire a professional! If your tax return makes you cry and you feel like you’re missing some information, don’t risk it and hire someone else to do it for you.
There are many online services that you can file for free if your tax status is simple and no deductions are listed (just get the standard deductions available for your situation). In general, this may apply to you if you do not own property and are not a self-employed person or student. However, there are some completely free options recommended.
Try the following out:
- Credit Karma is a simple and powerful online tool similar to Turbo Tax, but for now, it’s free to use.
- The IRS free file. A free electronic service for anyone with a total income (excluding tax) of less than $ 66,000.