13 Warning Signs That You Have a Debt Problem
Learn red flags to watch out for that could prevent you from building wealth and solutions to turn around your financial life.
“Audit” may be the scariest 5-letter word in the English language, but we’re here to remove the mystery and give you some peace of mind.
There are a lot of misconceptions about what an audit truly is and what to expect if you get audited. The IRS defines an audit as “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is accurate”.
In a nutshell, this means that the government wants to talk to you about a discrepancy in your income tax returns. They basically want to resolve a discrepancy between their understanding of what you should owe and what you reported. However, to really understand what an IRS tax audit means for you, let’s examine the IRS definition one piece at a time.
There are several reasons why you might receive an audit notice from the IRS. The simplest explanation may be that you have incorrectly filed your income and deductions. The numbers don’t match when compared to what your employer and/or bank filed with the IRS. In this case, the government needs to clear up what is accurate and expects you to help them sort it out.
Another scenario happens when you and a business partner or investor in your company file information that doesn’t match. This type of audit can originate with the other party. The IRS basically needs you to either confirm or deny what someone else reported. This is considered a “related examination.” SImply provide proof that what you filed is accurate and you shouldn’t have any reason to worry.
Lastly, believe it or not, you get selected at random. Essentially, you’re the winner of a very unfun lottery. There’s no discrepancy or problem with your filing, per se. You’re just statistically unfortunate.
In 2018, the IRS audited less than 1% (0.6% to be exact) of all individual tax returns submitted for calendar year 2017.
Is it a funeral or a party? The outcome of an IRS tax audit depends on what you bring to the table. As long as you’re honest and not claiming deductions or credits you didn’t earn, you should be fine. If you’re not being audited by mail, you’ll be personally interviewed by a government official. The IRS agent can conduct the interview at your home, place of business or at the IRS office. Prior to your meeting, they’ll tell you what records you need to present. Generally speaking, you’re expected to keep records that go back at least three years. The interviewer will ask specific questions about what you filed on your return. You need to be able to back up everything you submitted.
Remember, being the subject of an IRS tax audit doesn’t automatically mean that you owe them money. An audit can end without you getting into trouble and owing back taxes. It’s the old adage that a clear and innocent conscience fears nothing. As long as you’ve reported your income and deductions honestly, you don’t need to worry. In fact, an audit may result if you receiving additional money as a refund.
Of the 1 million audit examinations conducted in 2018, 30,000 resulted in additional refunds totaling more than $6.0 billion.In the event that you made a mistake, you have the right to disagree with the IRS agent’s assessment. If necessary, you also have the right to retain legal representation.
Once you receive an IRS tax audit notification and the initial wave of panic recedes, review your records for honest mistakes. If you knowingly falsified your return and aren’t surprised by the audit, start by reading your rights as a taxpayer on IRS.gov. There are also additional steps you need to consider, such as hiring a tax attorney.
Similarly, if the IRS determines that you made a mistake on your return and you want to contest it, you have options beyond simply knowing your rights. The best advice is to consult with a tax resolution company. They will not only go over your liberties but can argue your case directly with the IRS. Provide all the necessary documents, so they can present an intelligent argument on your behalf.
Ultimately, securing representation may be essential in ensuring you get the most desirable resolution possible. It will also help to give you peace of mind that you can make it through your IRS tax audit with your finances and sanity intact.
Article last modified on August 7, 2019. Published by Debt.com, LLC