The professionals at Wall and Associates know that it doesn’t take a group of tax experts to realize that nobody enjoys a tax audit from the IRS or the state. Nevertheless, every year thousands of taxpayers are chosen to have their tax returns audited.
While this can prove nerve-wracking for many individuals or businesses, the resolution experts at W&A explain that it doesn’t have to be. By understanding some of the audit process, including what to expect and options available, taxpayers can deal with audits much more easily and with much less stress. And, if need be, qualified tax consultation services are always available to taxpayers through professional firms such as W&A.
What Triggers an IRS Tax Audit?
According to Wall and Associates, there are several reasons why an individual’s or business’s tax return may be chosen by the IRS or the state to be reviewed and audited. The most common reasons behind an audit include the following:
- The document matching is off, meaning that the information being reported on the tax return itself does not match the information that is reported to the IRS or the state.
- The return has been chosen via computer screening based off of statistical information.
- The tax return in question was selected via random generation.
- The return involves enough red flags that commonly raise suspicion.
How Does the Audit Process Work?
If a taxpayer or business has been selected for an IRS audit, says Wall and Associates, then the IRS themselves will notify them usually through mail.
The audit process itself may be conducted either at a local office of the IRS or through an in-person interview at the home or business of the taxpayer. Audits are also conducted by mail/fax.
How Long Do Audits Typically Take?
Depending on the amount of paperwork that needs to be reviewed, the audit process itself may happen fairly quickly, or it may last for months.
What Happens After an Audit?
Once an audit has been completed, says Wall and Associates, the IRS will come to one of three possible decisions regarding the taxpayer’s return. These decisions are “agreed,” “disagreed,” or “no change.”
- Agreed means that the IRS has determined that the taxpayer’s return does in fact need some changes made. They then explain these changes to the taxpayer, who chooses to agree with them.
- Disagreed likewise means that the IRS has decided that a return needs some changes made to it. However, after explaining these changes to the taxpayer, the taxpayer disagrees with them. From here, taxpayers have several options available to help them appeal the decision.
- No change means just what it sounds like it means. The IRS has decided that the tax return in question is in fact correct and does not need to be addressed further.
To help taxpayers prevent an IRS audit in the first place whenever possible, W&A experts offer the following list of common audit areas. Those taxpayers who cannot avoid the following on their returns should make sure they keep good records just in case of an examination.
- Large Cash Incomes – Taxpayers who receive a large amount of their income in cash are naturally more likely to be chosen for an audit than taxpayers who receive traditional paychecks. Since cash is harder to trace than checks or electronic transactions, there is a greater possibility that the individual in question is not reporting their full income amount.
- Being Self-Employed – Taxpayers greatly increase their chances of being chosen for an audit simply by being self-employed. Again, explains Wall and Associates, this is because self-employed individuals, like individuals with large cash incomes, are in an easier position to misreport their income.
- Relatively Large Deductions – One of the biggest audit prompts, says W&A, is when a deduction is unusually large given the size of the individual’s income. For example, if a taxpayer makes $400,000 and reports a $70,000 deduction, this may not raise any flags. A $70,000 deduction from a taxpayer who makes just $100,000, though, will look more suspicious.
By being on the lookout for these and other potential audit triggers, concludes Wall and Associates, taxpayers can better defend themselves against ever receiving an audit in the first place.
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