Okay, this is probably a post that isn’t exciting or fun. I’ve never met someone who thought tax returns were a fun subject (except for my tax professor I describe below), and I definitely have never met anyone who wanted to be audited.
Even if you’re doing everything correct, an audit is still not a fun thing.
I took a few tax classes with the same professor in college and my professor was actually a tax auditor. He often shared his audit stories and they were something that would put fear in any normal person.
According to Turbotax, around 1% of tax filers get audited. That’s not very much, but there are little things you might be doing that are increasing your individual chances of getting audited.
Some of these reasons include failing to report all of your income, deducting business expenses that aren’t actually business expenses, and earning more than $200,000.
Also, according to NOLO, once you go over earning more than $200,000 the chance increases quickly to 2.66% and those making over $10,000,000 have a 29.93% chance of being audited. That’s a much bigger chance! Of course, the chance of you making over $10,000,000 and reading this blog is probably fairly slim, but I just wanted to throw that out there 🙂
How will you find out if you’ve been audited?
You will find out if you’ve been audited usually by receiving a letter from the IRS. This letter will tell you mostly everything you need to know about your audit. Make sure you take plenty of time to read this letter from the IRS and that you fully understand each word.
For most people, you will need help when it comes to your audit. If you don’t know what you are doing or you don’t understand the letter you received from the IRS, then you will definitely want to seek help from a tax professional.
They can help represent you because they most likely understand tax law better than you do.
Organize your papers.
For most people, their biggest fear of being audited is having to collect all of the needed papers because they are not well-organized. Once you receive your audit letter, you need to start gathering every paper related to your business that you have. You should try to organize them in the best possible way and make sure everything that you have matches what you stated in your tax return.
You will want to find any receipts, invoices, bank statements, and other paperwork that the auditor has requested from you.
Attend the meeting with a smile.
Here it comes, the audit meeting!
You will have to find a time that works for you, your tax professional, and the auditor. You want to be nice and respect this person. Too many people go into their audit meeting yelling and angry, and that is just not the way to do it. You should be professional and have at least somewhat of a smile on your face.
However, it is also worthwhile to note that this is a professional meeting. You probably do not want to be cracking jokes and sharing gossip with the auditor. You should only share information that they are asking for, and nothing else because that could lead to other time-consuming investigations.
Have you ever been audited? What happened?
Image via Flickr by Joe Hall