If you receive a notice from the IRS about a pending tax audit, it’s helpful to understand the process before it gets underway, and it’s even more helpful to know about some common tax audit myths that everyone tends to believe.
Understanding what happens during a tax audit can help you prepare for that eventuality by keeping the right records and making the right decisions each year during tax time. However, remaining aware of common myths will ensure you don’t needlessly fear the process if you get a notice in the mail.
The IRS states that an audit is:
“… 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 substantially correct.”
The IRS uses a system to determine which tax returns are worth auditing by looking at returns that stray outside of expected amounts. However, audits aren’t actually that common, and they do tend to cost the IRS money because of the time spent investigating. Statistics suggest only around one percent of people who file taxes ever get audited.
Tax Audit Myths
One of the best ways to understand a tax audit is to understand the common myths that surround the process. It’s not uncommon to believe an audit is the worst thing that can happen to a taxpayer short of a prison sentence, but the process isn’t one to be feared.
Here are a few myths about IRS audits that many people believe, even if they’ve been filing taxes for several decades and have never had any reason to fear the IRS or an audit:
Myth No. 1: You should be afraid of getting audited
Audits aren’t necessarily a process that takes several years and requires a huge amount of time and paperwork to complete. In many cases, a tax audit isn’t that complicated, and you might only need to ask a few questions. The IRS might want to confirm something you wrote on a tax form is correct, and so they send a letter out with a few, simple questions to answer.
Myth No. 2: A low income means you won’t get audited
The IRS doesn’t discriminate when it comes to auditing people of high or low income. Although very wealthy individuals tend to receive a lot of publicity when they’re audited, low income or moderate income taxpayers may also see an audit. However, audits remain a relatively rare part of what the IRS does overall each year.
Myth No. 3: An audit will occur right after you file your taxes
The IRS will contact you about an audit within three years after the due date of the tax return in question. If the agency finds a significant error on your tax return, they may look back up to six years in the past to look for errors. Most tax professionals suggest taxpayers keep at least six years of records, just in case an audit occurs. The reason it can take a while for an audit notification to arrive is because the IRS must sift through hundreds of thousands of returns each year.
Myth No. 4: Certain tax deduction increase the likelihood of an audit
It’s very common for people to assume that certain deductions will automatically trigger an audit. However, there are no deductions that make the IRS consider conducting an audit unless those deductions are handled in such a way that they are markedly different from the way other taxpayers usually handle them. It is only when a tax return contains atypical numbers that an audit is triggered. Not the particular deductions taken to arrive at those numbers.
Myth No 5: Using a professional means no tax audit
A professional tax preparer or accountant cannot shield you from an audit. Anyone can make a mistake, and that includes tax preparers who want to ensure their clients get the biggest refund possible. Tax preparers may make a mistake or cause the IRS to question an entry on your tax form, so using a professional doesn’t guarantee you won’t get audited.
Get Legal Assistance for Tax Audits and IRS Problems
Have you received notice from the IRS about an audit? Do you want to know your rights under the law? Would you like to know how the legal team at Suburban Legal Group PC can help? Request a Free No Obligation Legal Evaluation today, and we’ll let you know your options and how to work with the IRS during your audit.
DISCLAIMER: All information on this website is provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.