Is there a word in the English language that strikes more fear into the hearts of American taxpayers than “audit”? However, an audit doesn’t have to be a terrifying experience. There are several things that you can do to avoid an audit all together, as well as be prepared if you are audited.
Avoiding IRS Audits
The first thing to remember in tax filing is to be honest. It seems rather trite to actually have to tell taxpayers to be honest on their taxes, but thousands of people every year “cheat” or claim dishonest adjustments on their taxes. The tax system, as it is today, is full of honest ways to lower your tax liability and finding out about these beneficial adjustments and credits should be the first thing a taxpayer should do come January. Tax law changes occur every year and it is vital that taxpayers keep abreast of the new changes and laws that occur.
Consider using a Professional
Finding a good tax professional or an accountant will be essential if you have a complicated return. Even if you are unsure about a simple return, it is always advisable to seek professional advice when preparing your taxes. Remember that a simple ignorant mistake can cost you time and money if you are audited.
The IRS Audit and Enrolled Agents
An IRS audit is generally two days duration at the minimum. This is time that you will have to be in attendance. The only way that you can avoid being present for an IRS audit is if you hire an Enrolled Agent to represent you. Enrolled Agents can charge as much as $120.00 and hour and will usually bill for a minimum of sixteen hours. Even if you have an agent represent you at the audit, you will have to meet with that person and have all your records in order for them to properly understand your situation and the reason why your taxes were filed as they were. Time is money, and you will spend a great deal of time if you are audited.
Tax Audit Consequences
Another thing to consider is the consequences of an audit. If it is determined that you intentionally filed a fraudulent return, which is a federal offense, you could face jail time as well as hefty fines and penalties. Being honest on your taxes is not only the law; it is a sure-fire way to stay out of trouble. Keep your information and your records updated and don’t fall into the ignorance trap.
Focus areas and Red Flags
The IRS chooses several items each year as topics per say to initiate audits. Some items are more subject to audits than others are in these recent years. Head of household filers and those claiming the Earned Income Credit are hot topics with the IRS due to the numerous fraudulently filed returns containing these items. Dependant exemptions are another frequently audited item. Again, being honest on your taxes and not claiming things that you do not qualify for will help you to avoid trouble with the IRS. In the event that you are audited, there will be nothing to hide during the process.
Keep your Tax Records and Documents
You will also need to find out what records to keep and make sure that you have your last three years tax returns along with any required receipts and records handy. This will help you if you are audited to save some time trying to request copies from your accountant, tax service, or worse, the IRS itself. Having everything in one place will also be useful if you are being audited on more than one year. Tax returns can be destroyed after three years, but keep in mind that if the IRS finds something amiss in your current tax return, they can go back farther than three years to audit if they suspect fraud.
Above all, file your taxes honestly and make sure you file them on time. Audits are costly in time and inconvenience, but a necessary process to keep fraud to a minimum and to keep fairness in the system. The tax code is complicated, so if you have questions, pose them to a qualified professional, not just your neighbor. Misinformation can get you into trouble as well as dishonesty.