When Tax season comes around Audits do to. At least one out of every one hundred will be selected from personal tax returns. Audits don’t mean you’ve done something wrong it just means you’ve got to prove your financial records are correct by providing the necessary documents. Most people panic when they find out the IRS will be investigating their taxes. Try to stay calm. The computer used to run your taxes through the IRS system can and does make mistakes, but even though mistakes happen the number of people who get stuck paying more taxes from an Audit falls in the range of six out of seven people.
If an Audit comes knocking on your door begin preparations to back your tax return. Any questionable parts of your taxes the IRS will be asking you about make notes to yourself on a piece of paper. Then get documented proof by making copies of receipts, bank statements, etc. If you don’t think you can do it on your own hire an advisor. The IRS will tell you what it wants: when and where the information will be expected.
Audits come in three forms.
The first is a Correspondence Audit.
The IRS service center directs the Audit straight to your mailbox by letter. A new estimated tax will be listed with their views on the problem. Simple things such as selling or buying a house or substantiating itemized deductions may be the whole reason of the Audit. Paper proof of your claims may be asked for and additional forms might have to be filled out. You normally don’t have to go face to face with an IRS agent. Your presence in person is not requested as long as you send everything they ask for through mail.
The second is an Office Audit.
You will get a letter by mail from the IRS, but unlike the Correspondence Audit you will have to make arrangements for an in person appointment if the scheduled appointment time isn’t stated on the letter. If an Office Audit is requested of you the Auditor has personally reviewed your income taxes. In the letter the Auditor will point out the items up for further examination and requested documentation for proof.
The third is a Field Audit.
A letter will be sent by mail to let you know an Audit will be taking place. When an IRS Field Agent audits you it either has to do with your business or issues more complex than the Office or Correspondence Audits. This IRS agent will further examine the items in question passed down from the IRS Service Center, but all areas are subject to investigation. They may do the Audit in your Accountant’s office, your Business or your home.
To minimize your chance of being chosen for an Audit in a situation that will raise suspicions you can attach documents to your return along with an explanation of the expenditure. This can include losses from natural disasters, charity contributions, or the expenses of child-care.