Many people are afraid when it comes to tax audits, but this should not be the case. Many of the things you might have heard about tax audits are unfounded. Many people dread an audit when it comes to the outcome of the tax filing process, and this makes people feel unsettled. This means having to get a visit from IRS with badges to your home, or the agency seizing your personal assets. Many experts will tell you that many people have the wrong idea when it comes to audits.
You will find experts telling you that the government doesn’t want to do the audits. This is because they have to use a lot of resources and also there is the negative image that an audit will project onto the agency. A small percentage of filers will get audited, and this is only one percent. There are systems that IRS has in place that determines who gets audited. Although only a small percentage gets audited, there is a good chance that the agency will audit your own. It is important to know the right information instead of working with myths. Here are some common myths from Dean Hines Lawyer that many people have about tax audits.
You should be afraid of an audit
One myth that is out there is that the audit process is something that you need to fear. What most people don’t know is that for most people, all they need to do is to respond to a couple of questions by the IRS. Many people will start to panic the moment they get a paper from the IRS. Most of the time it will be a simple problem that needs to be resolved. You provide information or more money, and there is no penalty involved, then the case is closed.
The more common of the two IRS audits is this “correspondence”. This can be so subtle that many people don’t even realize that it is an audit. The other type is the in-person audit. The IRS will request to have an appointment with you and do a review of your financial information.
The problem in most cases is simple. Maybe someone sold some stock then forgot about it when they were filling their taxes, or they did not know the worth of their stock. So they can get a letter from the IRS asking for information and they can end up getting a refund because they ended up losing money on the sale.
Returns that have been filed professional are audit-proof
Paying for an expert to help you file the returns doesn’t protect you from an audit. Many people keep thinking that the tax service they used was solid and mistake-free return. There are some who will focus too much on trying to get you most of your money back through refund and end up screwing up in the process. There are some tax preparation operations that take part in fraud, and a taxpayer ends up not understanding what they are claiming on their returns.
People with moderate or low income are not going to be audited
Many people think that they cannot get audited because they are not making much money, but the IRS has in the recent past ramped up the number of audits they do. It is important to remember that IRS does audits across all incomes. This is why they have been hiring more people to do this type of work. The good news is that the percentage that is being audited is still small. Always remember that anyone can get audited regardless of their income.
Filing for given deductions or credits increases the chance of getting audited
There are people who try their best to avoid taking certain deductions and credits, which means they are denying themselves tax benefits that they are entitled to, because they have heard that if they do it, then they will increase their chances of being audited. This is not the right approach because you are missing out on tax benefits that you should be getting. You should take advantage of these credits and deductions without having to fear about getting audited because that is not how it works.
It is important to remember that there are no triggers that automatically lead to an audit. The main thing is when the financial picture you have painted in your returns stands out beyond common sense, then it could be a concern enough to get an audit. If you feel like filling out some information is going to get you audited, then trying to hide it will make the situation even worse. If the information you have provided is true, you don’t have to worry because you will just need to explain the situation to the IRS, and the issue will be done.
Audits are immediately done
There is a statute of limitation of three years after the due date of filing the returns, and this is what the IRS abides by. If there are substantial errors, then the IRS can go back up to six years and they will recommend that you maintain the records. It is common to have the audits done after two years of filling. This is because there are millions of people and corporations filing the returns, and it can take some time before the filings have been analyzed.
It is important to understand how the process works so you cannot believe the myths you hear. Americans try their best to earn as much as possible and pay the least amount of tax. There is a process that is followed, they just don’t come and take all your money. You have your rights too. If you owe IRS the money, then it will need to be paid eventually. Provided you are talking to them, you don’t have to worry about anything happening without your control. Most of these myths are usually spread by people who have not yet been audited. It is important to have the information, so you don’t end up believing anything you hear.