The IRS reviews your tax return to ensure that everything is accurate and you have an opportunity to explain it. That is it! An audit is an intimidating review, but it isn’t. A lot of audits are conducted by mail. Understanding the IRS audit process beforehand can help to reduce the stress of an audit. We will discuss what an audit is, what you can expect, what you should expect to be audited on, and what papers you may need to provide. Let’s begin!
What constitutes an IRS audit and why could the IRS want to audit a tax return?
A tax audit by the IRS is an examination of your tax returns. The IRS verifies that your income, deductions, and credits are reported accurately. The return can be picked at random, picked because the numbers are unusual according to a computer system, or because your numbers don’t match the numbers from your employers or banks. Just because you were selected doesn’t indicate that you were doing something wrong.
Understanding an IRS Audit
The answer to the question, “What is a Tax Audit?” often comes as a shock to those who ask it, as a Tax Audit may span back as far as thirty years. Typically, the tax audit period will span the past three years of tax returns. The Internal Revenue Service could go back 6 years if a substantial sum of income is not claimed. That is why it is a great idea to keep records for a few years.
How will you know that the IRS is auditing your tax return?
You will be notified of an IRS audit in the mail. An official letter will be sent to you at the address on your last tax return. The IRS does not initiate an audit with a phone call, email, text or social media message. Likely the call is from a scam attempt if someone calls you that way and claims to be from the IRS.
Receiving an IRS Audit Notice
Read the letter carefully. It will inform you what tax year is being looked at, what the IRS is looking at, and the date by which you need to respond. Do not ignore it. Tax audit timelines must be respected, as the changes resulting from missed deadlines might not be explained. Copy the letter, record the deadline on your calendar and store the letter in a safe place.
What documents and financial records might the IRS ask you to provide during an audit?
Typically, the IRS requests documents for only specific items that appear on the return being reviewed. Some of these documents may be receipts for your income, receipts for your expenses and papers for your deductions or credits. The letter typically details precisely what is required. Only send what’s requested and retain your original papers. Typically, copies will suffice. This process is much easier when organized records are kept.
Documents you may need:
- Health records: medical bills, claim reimbursements, or medical cards.Bank statements: Bank transactions, charges, and deposits.
- Business receipts: Invoices, canceled checks, receipts.
- Log of mileage: Dates, locations, and business driving purposes.
- Home office records: Square footage, utility bills.
- Deduction proof: Mortgage interest forms, medical bills, donation receipts.
- Credit proof: School records and/or proof of youngster’s birth for dependents.
- Accounting records: Reports like QuickBooks, make it easy to see how your numbers were tracked.
- Past returns: Copies of previous returns.
How does IRS audit and what to expect at IRS audit?
The IRS audit process is dependent on the nature of the audit. A correspondence audit is conducted through the mail. An office audit is a visit to the IRS office. Field audit is conducted at your business or residence. In both types, an IRS agent looks at your records, asks questions, and determines if you need to change anything. You can have a tax professional represent you.
What is happening in an audit?
- No Change: IRS takes your return as is.
- Audit adjustment: IRS makes a change in the numbers and you’ll have to pay more or receive a refund.
- IRS audit fines: If tax is due, there can be a 20% accuracy penalty and interest may accrue.
- An appeal can be filed at the Independent Office of Appeals of the IRS.
H&M Tax Group will guide you through each step and assist you in preparing your response and keeping organized.
H&M Tax Group is Your Comprehensive Tax Solution for All Your Tax Needs
- Expert Tax Professionals
- Certified CPAs
- Quality Of Service
- Affordable Rates
Conclusion
The IRS letter can be a stressful experience, but you’re now prepared for it. An audit isn’t a punishment! Read all notices, act promptly, and maintain neat, clean, and complete records. If you ever find yourself unsure, get professional assistance. H&M Tax Group is a trusted tax advisory group that assists individuals and business owners in remaining accurate and ready. Keep your numbers tidy throughout the year with our income tax filing, bookkeeping, and QuickBooks services. Please contact H&M Tax Group today, and let’s ease the anxiety of tax season together.