What Happens if the IRS Audits Me, and How Should I Prepare?
Proper documentation and a cool head make the audit process easier.
If you’ve never been audited, the stress is hard to imagine. Most taxpayers are unprepared and, after filing, think, “I’m finished.” They keep filed documents but rarely keep worksheets, receipts, or other supporting records. Without these, a bad outcome is almost certain.
An IRS audit in Delaware County does not mean you did something wrong. With good planning, neat records, and help from Phoenix Tax Consultants, you can handle it. Usually, taxpayers who take action and stay informed keep their assets safe and get the best results.
What Triggers an IRS Audit?
When bureaucrats review tax returns, usually as seasonal employees with little experience, they look for red flags. These include discrepancies in reported income or unusually high deductions. Additionally, and this is the scary part, IRS auditors often randomly select taxpayers.
Furthermore, Pennsylvania taxpayers who are self-employed, claim large business expenses, or have complicated returns, such as multiple income sources or itemized deductions, may be more likely to be audited.
Types of IRS Audits
If a taxpayer is in an at-risk category or a bureaucrat thinks they spotted a red flag, an audit is almost inevitable. There are three major kinds of audits:
- Correspondence Audit: This is the most common kind of audit. It usually begins with a “Dear Taxpayer” letter and is handled through the mail. The IRS requests extra documentation to verify specific items on your return and gives taxpayers little time to comply.
- Office Audit: An office audit is basically an in-person correspondence audit. Agents ask (or rather command) the taxpayer to visit a local office and provide the requested documents for review. Agents often conduct office audits when the requested records are voluminous or when the taxpayer may have other legal issues.
- Field Audit: This is the most adversarial and comprehensive type of audit. An IRS agent visits your home, business, or accountant’s office. Field audits are rare. The rate is less than 1 percent. This type almost always involves a one-percenter taxpayer.
The audit notice usually includes a request for documents. This request may include income statements, receipts, bank records, and other financial documents. Initially, the audit focuses only on certain areas of your tax return, usually a specific line on the most recently filed 1040. However, in some cases, it can expand to multiple years if discrepancies are found.
If the IRS determines that your return is accurate, the audit ends with no changes. If errors are found, you may owe extra taxes, penalties, and interest. In some cases, you may also get a refund if you overpaid.
How to Prepare for an IRS Audit in Pennsylvania
First things first. If you receive an audit notice, do not panic. As mentioned, you probably did nothing wrong. Even if auditors find errors, as you must pay a big bill, relief is available.
Next, carefully review the return being audited so you know what you reported. This knowledge helps you respond confidently to IRS questions. Then, gather all relevant documents, such as W-2s, 1099s, receipts, and expense records, even if the IRS did not request them. Proper documentation is your best defense during an audit.
Do not ignore IRS notices. In your response, provide truthful and complete information. If you hide important details, the IRS will discover your actions.
Finally, do not handle an audit alone. Hire a tax professional, such as a CPA or enrolled agent. Even if they mostly provide moral support, they know IRS procedures and can represent you during the audit.
For more ways to maximize your financial resources, contact us online or call 610-933-3507.