5 Reasons Why You Should Stop Worrying about a Tax Audit
Even worse, we don’t want a letter from IRS informing us that we are subject to a tax audit. Even worse, we do not want to receive a letter from IRS informing us of a tax audit. Here are a few reasons why you shouldn’t worry about it too much this tax season. Your audit risk is very low. From 2011 to 2019, only 0.55% of all individual returns were audited by the IRS. From 2011 to 2019, for example, the IRS audited 8,9% of individual tax returns filed by taxpayers with incomes exceeding $10 million. Higher-income taxpayers are more likely to face an audit because they have more complicated returns and the IRS collects more money. This can increase audit risk. A tax audit doesn’t automatically mean you’re in trouble.
While it’s true that the IRS can audit people suspected of doing something wrong, that’s not always the case. The IRS audits random taxpayers every year as part of its audit process. In some cases, discrepancies on your return may trigger an audit and increase your risk. If your information on your tax returns does not match the data that the IRS has received from other sources, such as the Form W-2 you reported your taxable income, the IRS could consider this an audit red-flag and initiate an audit. If it’s a simple math mistake or typo, don’t worry. The IRS may simply ask for additional documents or request an amended tax return. IRS tax audits usually go back two to three years.
If you have filed multiple income tax returns, you might wonder what the IRS would do if they audited a previous return. Would you be able to find the necessary tax forms and remember all the details about that tax season?
Fortunately, you don’t need to worry about audits on tax returns from a decade ago. According to the IRS most tax audits concern returns filed in the last three years. If they find a significant error, they can choose to go further back than three years. You can reduce your chances of an audit. You can reduce your chances of an audit.
Certain items on your tax return may attract the attention of the IRS and make you a more likely target for a tax audit. Some examples of potential audit triggers include:
Business losses that are actually hobbies:
As an example, let’s say you raise horses or dogs and take a loss every year. In this case, the IRS may disallow it because your “business” only classifies as a hobby in their eyes.
Deductions and income tax credits for unusual amounts:
If you claim you give a large portion of your income to charity through non-cash contributions, the IRS may want to examine your situation more closely.
Business deductions:
The IRS may take particular interest in unusually large travel or entertainment business expenses.
Large casualty losses:
You can only deduct losses not reimbursed by your insurance company, so if you write off a large casualty loss, the IRS may want to look closer at the situation.
Despite this, don’t be dissuaded from taking a home office deduction or casualty loss you qualify for because you’re afraid of a tax audit. Just be aware that the IRS may want to investigate certain items more closely and keep your records in good shape in case they do.
- Similarly, the IRS is less likely to audit returns that are free from mistakes. TaxAct(r), can help you in this area. By answering the questions correctly and following the instructions in our tax software, you can easily prepare an accurate and complete return. TaxAct(r), offers Audit Defence
- 1 as a service to protect your income tax return from audit. You can use our Audit Defense service during the filing process. If you are audited by the IRS, a professional auditor will answer questions from the IRS or state taxing authorities in your place. Don’t panic if the IRS audits your tax return. You may be asked to provide additional documentation or give a response regarding a specific item. If the IRS asks for a field or office audit, you may gather your information to represent yourself, if that is what you feel comfortable doing. You can also choose who will help you. You have certain rights when you are subject to an IRS audit. Besides the right to representation, you also have the right to know why the IRS is requesting information, to make an audio recording of an interview with notice and not to be repeatedly examined for the same information.The bottom line
- Receiving a letter from the IRS can be scary, but your chances of getting audited when filing a complete and accurate return are pretty low as an average filer. If you are worried about an audit, you can take some steps to reduce your chances. If you are faced with an audit, it’s best to remain calm, respond promptly and know your rights as a taxpayer to ensure a fair outcome. All TaxAct products, services, and offers are subject to the applicable terms and conditions. This offer may not apply to certain credits and forms. Some customers may not be eligible for services due to their past audit history, residence, or other factors. Audit Defense is not an insurance policy. Audit Defense is subject to terms and conditions (PDF) located on Tax Protection Plus’s website.TaxAct, Inc. gets fees from some third parties, including Tax Protection Plus, that provide offers to its customers. This compensation could affect how and what we communicate to you. TaxAct does not offer legal or financial advise, nor is it a party to any transaction you may enter into with Tax Protection Plus. TaxAct disclaims all liability for such transactions. Please refer to the websites of third parties for complete terms and conditions.
