If you’ve received an IRS audit notice, your heart might be racing, and questions about what to do next may be overwhelming. You’re not alone. Tax audits are a reality many individuals and businesses face at some point. In fact, IRS audits are a common issue for taxpayers in Colorado Springs and across the country. However, being audited doesn’t automatically mean you’re in trouble, and it doesn’t mean you’ll owe additional taxes.
Understanding the audit process and how to handle it can help reduce anxiety and ensure that you are prepared to respond appropriately. Here’s what you need to know about tax audits and how to navigate the process effectively.
What is a Tax Audit?
A tax audit is when the IRS or state tax authority examines your tax returns in detail to ensure that your reported income, deductions, and credits are accurate. Audits can happen randomly, or they can be triggered by certain red flags in your tax return, such as:
- Discrepancies in reported income or expenses;
- Excessive deductions that are out of line with your income;
- Excessive deductions that are out of line with your income; and
- Large business losses or other unusual financial activity.
Audits can be done in several ways: by mail (the most common), in person, or through an office visit. Regardless of how it’s conducted, it’s important to respond correctly and promptly to avoid additional penalties.
How does an IRS Audit Work?
When you are audited, the IRS will typically ask for more documentation to support your tax filings. Depending on the nature of the audit, this could include:
- Bank statements
- Receipts for deductions
- Proof of income, such as W-2s or 1099s
- Medical or business-related expenses
You may be required to attend an in-person meeting with an IRS agent. This meeting could take place in your home, at your business, or at an IRS office. The auditor will review your records to confirm that everything aligns with your tax return. If discrepancies are found, additional taxes may be owed.
Common Tax Audit Triggers
While being audited is not an automatic indication of wrongdoing, certain actions can increase the likelihood of an audit. Some common triggers include:
- High deductions for things like home offices, charitable donations, or business expenses that seem disproportionate to your income.
- Reporting significant business losses that may appear suspicious if not well-supported by documentation.
- Claiming a lot of credits or deductions, such as earned income credit or education credits, that the IRS regularly scrutinizes.
- Round numbers on your tax return that don’t match actual income or expenses.
It’s crucial to understand how these factors can affect your audit risk, but it’s equally important to remember that even if you’re audited, it doesn’t mean you’ve done anything wrong.
What Happens During an IRS Audit?
Here’s a basic breakdown of the steps involved in a tax audit:
- Notice from the IRS: You’ll receive a letter from the IRS notifying you of the audit and what information they need to proceed.
- Document Submission: Depending on the audit type, you may need to provide supporting documentation (such as bank records, receipts, or proof of income).
- Audit Review: The IRS agent will review your documents and assess whether your tax return is accurate.
- Audit Resolution: If the auditor finds discrepancies, they will propose changes. You may owe additional taxes, interest, or penalties. Alternatively, if everything checks out, the audit will be closed without any additional action.
If you disagree with the audit findings, you have the right to appeal the decision, which is where the expertise of a tax lawyer can help.
How to Prepare for an Audit
If you’ve been notified of a tax audit, the first step is to remain calm and stay organized. Here are some tips to help you prepare:
- Gather all documentation: Make sure to have all relevant tax records, including receipts, statements, and invoices, readily available.
- Review your tax return: Go over your filed return and compare it with the documents you have. This will help you understand exactly what the auditor is looking at.
- Consider professional help: It’s highly recommended to seek the assistance of a tax attorney or tax professional. They can help you organize your documents and represent you in the audit process.
Why You Should Consider Hiring a Tax Lawyer
A tax lawyer can provide invaluable assistance during an IRS audit. A qualified tax attorney can help:
- Navigate the complexity of tax laws and audit procedures.
- Ensure your rights are protected throughout the audit process.
- Represent you before the IRS, ensuring that you don’t make any mistakes that could lead to penalties or further scrutiny.
- Negotiate settlements or payment arrangements if additional taxes are owed.
At Harbor Point Associates, our experienced tax attorneys handle IRS audits. We understand the stress and confusion that comes with being audited and are here to guide you through every step of the process.
Conclusion
While the idea of an IRS audit can be daunting, understanding the process and knowing how to respond can make all the difference. By staying organized, understanding common triggers, and working with an experienced tax attorney, you can increase your chances for a better outcome. If you’ve received an audit notice or are concerned about the possibility of one, don’t hesitate to reach out to a tax professional who can help you navigate the complexities of the tax law.
If you need assistance with an IRS audit or have any other tax law concerns, contact Harbor Point Associates today. Our team is ready to help you resolve your tax issues efficiently, while reducing stress.
