What Is an Audit?Lindsay Chambers
The IRS conducts financial audits to ensure businesses and individual taxpayers report their information correctly, according to current tax laws. Selection for an audit does not always mean there is a problem or mistake with your filing. Sometimes, the IRS identifies returns to audit based solely on a statistical formula.
How Does the IRS Conduct Audits?
If the IRS chooses to audit your tax return, they will notify you by mailing you a letter that provides all instructions and contact information. Be suspicious of a possible tax fraud attempt if you ever get an email, phone call or text message from someone claiming to represent the IRS.
IRS audits take place either by mail or through an in-person interview. If the agency conducts your audit through the mail, the letter you receive will request specific documentation about the details you reported on your tax return, which could include receipts, bills, canceled checks, insurance documents and loan agreements. You can request a face-to-face audit at a physical location if your records are too cumbersome to mail.
Why Might the IRS Audit You?
Though your odds of being audited are tiny, it’s still worthwhile to avoid this potentially stressful and time-consuming experience by carefully following IRS guidelines, being honest and diligently documenting all tax-related information, keeping things on file for at least three years. Here are some reasons you might be subject to an official IRS audit.
1. Failing to Report Income
Underreporting income on your tax return is a leading audit trigger. The IRS receives copies of your W-2 and 1099 forms and will automatically check to see that your reported income matches up. If you neglect to report money you made from freelancing, side jobs, stock trades, investing or property sales, you could be setting yourself up for an audit.
2. Making Mistakes
Using the wrong formulas to calculate your taxes might also raise red flags at the IRS. While most people work with an accountant or use software to prepare their taxes, it’s still possible to file a tax return with a mistake. These errors don’t necessarily require an audit unless they are extensive enough to mark your return for a manual review, which could identify additional problems.
3. Claiming Incorrect Deductions and Credits
While the federal government offers tax breaks, incentives and credits for taxpayers to save money, these benefits require you to meet specific criteria and sometimes provide supporting documentation to prove that you qualify. For example, to claim the American Opportunity Tax Credit, you must report your child’s name and Social Security number and document expenses like tuition and books.
Small Business Tax Prep and Bookkeeping Services in Tucson
At Clear View Business Solutions, we know taxes can be complicated for small business owners, gig workers and freelancers. When you trust us with all your accounting needs, you can spend less time worrying about mistakes and potential IRS audits and more time pursuing your passion. Contact us to learn more about our small business tax planning and preparation services.