I Am Being Audited… What Can I Expect?

I Am Being Audited… What Can I Expect?

I Am Being Audited… What Can I Expect?

By: Malory Wood d/b/a The Missing Ink

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The day you fear the most has arrived: You are being audited by the IRS. So now what? You may be approaching a full-blown panic attack, but don’t worry! There are many ways to calmly progress through an IRS audit.

Here’s a simple breakdown of what to expect when you get audited:

Reasons for Audit

There are a variety of reasons you can be audited by the IRS. Here are several standard reasons:

  • Fraud
  • Errors on tax forms
  • No payment made
  • No taxes filed
  • Tax liability issues

In addition, the IRS has a hotspot list to target aside from your standard audit triggers. Here are some surefire ways that will land you in an audit:

  • Personal expenses being treated as business expenses
  • Abnormally high donations to charity, especially non-cash donations
  • Contradictory reported income and actual W-2 income statements
  • Many rounded numbers on reports

IRS Tax Notice

Whether you are randomly selected or have provided incorrect tax information on your tax return forms, you will receive an IRS Tax Notice in the mail informing you of the impending audit. The correspondence will inform you of the next steps to be taken.

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Provide Records

You will be instructed by the IRS Tax Notice to deliver several tax forms for their review. The IRS may ask you for any canceled checks, receipts, loan documentation, all bills, any legal documentation, employment information and personal/professional records.

Keep everything organized by date and category to eliminate confusion and extra stress. Having everything ready to go will ease the pain of the bumpy road ahead.

IRS Investigation

After receiving the requested information, the IRS will conduct a thorough investigation fact-checking your paperwork. The average audit allows the IRS to go back two years; however, there have been cases of the IRS investigating up to the last six years. For small business, the average audit investigates up to three years prior.

The point of an IRS audit is to evaluate whether or not you are paying the appropriate amount of taxes each year based on income statements, total expenditures and tax deductions. Keeping records of your taxes of at least the last six years is the safest bet.

Penalties

If found guilty of any of the above, the IRS has the ability to attach an additional percentage to the tax amount you presently owe. Here is the breakdown:

  • If an error is found on your tax return paperwork, you are subject to owe an additional 20-40% for your negligence, dependent upon the seriousness of the error.
  • If you are convicted of committing tax fraud or similar serious offenses, you will be at risk of owing an additional 75%.

In addition to owing a supplementary percentage on your tax returns, the IRS can seize property in order to compensate for the money owed. The only way to prevent this occurrence is if you are safeguarded by limited liability.

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Incarceration

Intentionally paying lesser the amount than owed to your tax debts is classified as tax evasion. If you are convicted of criminal tax evasion, which is separate from tax negligence, you may be subjected to prison time. The penalty is up to five years in prison with a whopping $250,000 to $500,000 penalty fee. Dependent upon the severity, you may be penalized with both.

 

 

 

 

 

If you are being audited, you do not have to go through it alone. CAM Financial & Tax Services is here to answer all of your audit and tax-related questions with professional, expert advice from our highly-trained staff. Customer service and maximizing your deductions are our highest priority. We provide full tax preparation services for partnerships, corporate, and individual federal and state incomes. Please call us today toll-free at (973)759-4045 to get started on your tax returns today!

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