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No one wants to dwell on the possibility of a tax audit. But being prepared can make the dreaded event a lot less, well, dreadful. Here’s what to expect.
Will the IRS Pick Me?
The good news is your chance of being audited is slim. In 2013, the IRS audited just 1% of tax returns.
Of course, that doesn’t mean you can kick your feet up at tax time and take it easy. You still need to mind your Ps and Qs. Audits are often triggered by something that simply didn’t add up right, whether it’s missing income or an unusually large home office deduction. That’s why it’s important to maintain careful records for at least three years after filing a tax return. Most audits happen within that time frame, though they may go back as far as six years if a major error is found.
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If you are one of the chosen few, you’ll receive a phone call or letter from the IRS notifying you. Whatever you do, don’t put off dealing with it. The IRS isn’t exactly known for disappearance acts. Instead, take a deep breath and contact a tax advisor you trust for advice on what to do next.
How Does a Tax Audit Work?
You may be surprised (and relieved) to know that three-quarters of audits are conducted solely via mail. For instance, you may receive a letter from the IRS requesting a receipt from the charity you wrote a big check to last year. As long as you respond with the information they need to close the gaps, the process should be pretty painless.
In-person interviews make up the remaining quarter of audits and can take place in a few different locations:
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- Your home
- Your place of business
- Your accountant’s office
- An IRS office
In-person audits are generally more involved, so partnering with a tax advisor is a must. You’ll want all the expert knowledge you can get! To make the process go smoothly, take time to organize your paperwork before you meet with the IRS agent, and do your best to stay calm and cordial.
Once it’s all said and done, the IRS may suggest changes to your tax return or find none are needed. If you do owe back taxes, be prepared to pay interest and penalties. Unless you’ve just downright cheated on your taxes, you shouldn’t have to worry about doing jail time.
Minimize Tax Stress
A tax audit might send shivers up your spine, but it’s not the end of the world. An experienced tax advisor can make the process a whole lot less scary. Whether you’re looking for a pro to help you avoid mistakes at tax time or to survive an IRS audit, we can help. Find an advisor Dave recommends in your area today!