You freeze up when you notice that you have a letter in the mail from the IRS. Upon opening it, you see the one word that makes many people quake in their boots. Audit.
What is an audit, and why are you receiving this letter? Can you dispute the problem and make it go away? How bad is your situation?
Can you settle this via letter, or is the IRS really going to send someone out to talk to you? We’ve got the answer to all of these burning questions and more. Check out this taxes 101 guide to learn the full gravity of your situation.
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What Is an Audit?
The first question on everyone’s mind when they get that letter in the mail from the IRS is, what’s an audit? Are tax audits bad? Are you going to get dragged away in handcuffs?
Your situation might not be serious enough for that last thing to happen. All this letter means is that the IRS found some inconsistencies in your taxes. They wish to review all your accounts and finances to make sure the information you provided on your last return was accurate.
Factors That Increase Your Chances of Getting One
Many factors will increase your chances of receiving an IRS audit. The first is your income. If you earn a suspicious amount more than what was on your last return, the IRS might want to look over these new finances.
If you’re self-employed and don’t receive a W2, you’re more likely to be selected than those who hold down a traditional job. Claiming a home office on your taxes will increase your risk.
In some cases, you just get unlucky. There’s always a chance that the IRS’s computer system will randomly select you for an audit.
What Kind of Audits Are There?
There are two different types of audits that you should be aware of. The first is a mail audit. This is the most low-pressure type of IRS tax audit there is.
They’ll send you a letter in the mail letting you know that you’re being audited. From there, it’s a simple matter of mailing proof of income and other requested documents to get the IRS off your back.
The second type is an office audit. You’ll have to go to your local IRS office to provide documentation and answer any questions they have regarding your return.
The good news is that there is a way for you to prevent getting hit with an audit. Keep track of all of your financial documents from the past three years.
Having them on hand while you do your taxes will decrease your chances of making errors. It will also make it easier to handle all your audits and tax disputes if errors do occur.
Everything You Need to Know About IRS Audits
What is an audit? It’s the one thing that never fails to send people into panic mode. The truth is, they’re not as big of a deal as you may think.
As long as you keep track of all your income and stay calm, you’ll be able to nip the situation in the bud and get back to your normal life.
If you’re looking for more ways to handle your taxes, we’ve got your back. Visit our blog daily for all the latest tips and tricks.