Tax Season is over, you have filed your taxes, gotten back your refund, and are ready to focus on the year ahead of you. Until you get that dreaded IRS audit notice.
IRS audit notices generally appear 1 to 3 years after a tax return is filed.
Most taxpayers don’t need to be overly concerned that they will be audited as only 0.59% of individual tax returns were actually audited in 2018. With proper planning and good recordkeeping, you can easily survive an audit. Being prepared for an audit sounds time-consuming, but in reality, it should be as easy as simply keeping the documentation that you used to complete your tax return. The invoices, receipts, canceled checks and government forms (W-2, 1099, 1098, 1099R, etc.) that you received should all be kept together if you do get audited for that tax year.
Reasons for an audit
Audits aren’t always because there is an error on your tax return. Your return can also be randomly chosen based on statistical formulas (for instance, a significant increase in charitable contributions compared to other taxpayers with similar income may flag your return).
Some audits occur based on whom you do business with. For example, an audit of a business partner or other flow-through entity(s) could trigger a follow-on audit of your return.
As a general rule, the IRS has three years in which to conduct an audit. An audit can take place through the mail (“correspondence audit”) or an actual face-to-face interview with an agent. The interview could take place in several places like the IRS office, your home, business or even your accountant’s office.
The returns being audited can range from the very simple such as a return with only salary income or the very complex returns include business income and expenses. The important part is to not get stressed over the audit; many times the IRS is simply asking for proof of certain income or expenses and will close the audit once it has the proof of the transaction.
What to do if you receive notice of an audit
The first thing you should do if you get notice of an audit is to contact a tax professional. A tax professional can represent you and help you navigate the audit. Tax professionals know what the IRS is likely to focus on and help you prepare, as well as help you defend yourself should the IRS decide to make changes to the income or deductions on your return.
Audits can certainly be a stressful event in anyone’s life. You can reduce that stress by proper preparation and asking for help in responding to the IRS notices.We can help you with both. Whether you have received a notice and just want help responding to it or you simply want to be prepared in case you get audited, please contact your Wegner tax professional.