June 13, 2016

43305887_sThe IRS tax audit is one of the most dreaded scenarios in the entire tax filing process. Most tax audit concerns, however, are unsubstantiated. To ease your fears, here are some of the common myths you shouldn’t believe when it comes to tax audits:

1. The auditing process is scary.

The auditing process is widely believed to be scary and stressful, but this is not always the case. In fact, roughly 76% of audits today are correspondence audits or audits that take place via mail. Also, how well the auditing process goes depends largely on you and your records. If your financial records are well-organized, then your audit is likely to go a lot smoother and is bound to be less intimidating.

2. Only the rich are audited.

It’s true that the IRS tends to target big businesses and individuals earning large incomes, but the IRS also audits individuals in the low and middle income brackets. Individuals with an annual income lower than $200,000 are generally audited 1% of the time, with this percentage going up as a taxpayer’s income increases. Individuals making up to $10 million a year face a 16.22% change of being audited.

3. Numerous deductions trigger an audit.

Good news! A long list of deductions will not necessarily trigger an audit. The system compares your tax return to other returns sharing similar characteristics. Questions are not typically asked when a return has a lot of deductions, but instead when unlikely deductions are made—such as for charitable deductions amounting to more than the taxpayer’s income.

4. You won’t be audited if you use an accountant.

Typically, audits are selected by a computer program. This means that using a tax attorney, accountant or other tax preparer service will not affect the selection process for an audit in any way. Of course, that doesn’t mean you should utilize a fly-by-night operation to save a few dollars. Always call a credible accountant or a reputable tax attorney if you need assistance.

5. Audits are performed immediately.

The IRS follows a statute of limitations of three years after a return’s due date, and up to six years for substantial errors. Tax audits do not usually happen immediately, but tend to occur in the latter half of the three-year time period.

6. You’re in the clear if you get a refund.

Keep in mind that it is still possible to be audited if your tax return was accepted and you’ve cashed your refund check. Since the IRS has to pay you interest if you are not issued within 45 days, it’s possible for the agency to send you a check and initiate an audit later on. As mentioned earlier, the IRS has three years to notify you if there’s a problem with your taxes.

Categories: Blog, IRS, Taxpayers' Rights