Taxes are complicated. Errors happen, confusion and miscalculations are not uncommon. It’s why tax experts like R&R are available to provide tax help and guidance for more complex tax situations. So, first thing first, the IRS will never contact you by phone and demand your credit card information and threaten you if you don’t pay. Hundreds of Americans have received that phone call and a select few have fallen prey to it. That’s not how the IRS does business. The second thing to keep in mind is, the IRS will likely contact you via mail and set in motion an entire process to review your taxes known as the infamous tax audit. So, let’s explore that.
We know, it can be scary to get audited, but it doesn’t mean you’re in hot water. Not yet, anyway. It could be that the IRS simply wants to review your tax dealings and straighten out any discrepancies.
But how about how to avoid this in the first place? Below are some precautions you can take to avoid IRS audits and some common tips on how to handle one if you happen to get that magic letter.
Tips to Avoid Raising Red Flag at the IRS
Every year, the IRS goes through thousands of tax returns. There are several red flags that might raise concerns and eventually lead to an audit of your taxes.
Below are some of the red flags to avoid:
- Math errors: Taxpayers want to double and triple-check their math skills. Making mathematical mistakes can have consequences down the road. Use verified software or a professional tax preparer to avoid this.
- Failing to report income: The ‘gig economy’ means there are thousands of people making a little money on the side. This might mean getting paid independently or through a 1099 Form. And while there is nothing wrong with a little money on the side, not reporting that income is a big no-no. If you do a couple of side projects for a company and get a few checks from it, the IRS still needs to have the income reported.
- Augmenting or fabricating charitable donations. Giving to charity is tax-deductible. Exaggerating or making mistakes on these numbers can also become a problem and raise some red flags at the IRS.
- Stretching the business expenses. For the self-employed, business expenses can help relieve the tax burden and alleviate the difficulties of running a business or working for yourself. Lying about the business expenses and claiming, say, your expensive makeup collection as a business expense, is not advisable. Also, try to explicitly list your business expenses instead of just listing one big sum.
What are the Chances of Being Audited?
While the IRS audits several tax returns, the odds that the regular Joe will get audited can be quite low. According to Nerd Wallet, for example, the numbers vary depending on tax and income bracket. In 2019, the IRS audited about 230,340 tax returns, which adds up to .15%.
If your income is:
- Between $1 to 25,000 the percent is about .28%
- Between $25,000 to under $50,000, the percent is about .13%
- Between $50,000 to under $75,000, the percent is about .08%
People are audited for a myriad of reasons. Some of these reasons include random audits through statistical algorithms or related examinations. The latter applies when a tax return connected to yours is chosen for audit based on some perceived red flags.
Protect Yourself Against IRS Scams and Scares
So while the possibility of an IRS audit is very real, it is —in the grand scheme of things— quite rare. And yet, every year the IRS publishes a Dirty Dozen list of scams that people engage in to trick taxpayers into thinking they are in hot water with the IRS. To protect yourself from falling victim keep these facts in mind:
- The IRS will never call to demand payment over the phone
- Demand payment without a process that allows you to make your case
- Require a specific payment method
So What Happens When You Do Receive a Letter?
So if that dreaded letter ever comes in the mail, breathe. Don’t panic. Here’s how to handle the situation:
#1: Read the notice carefully and talk to your tax expert
The best way to ensure you are understanding the IRS requests is to talk to your tax expert and have them look into the tax return they did for you. Every request might be different. It’s possible that you only need to provide documentation for something and are not being fully audited.
#2 Once you know what the IRS is looking for, collect the appropriate documents, make copies, and organize everything to be sent to the IRS
This is why people stress that copies, receipts, and documentation are really important before filing and after filing.
#3 Pay attention to deadlines and have a professional helping you
Asking for tax help with IRS audits can save you headaches and fines for missing deadlines or getting incorrect documentation. A tax expert knows the ropes and understands the audit procedure.
Get a Tax Expert On Your Corner and Get Tax Help With Your Return
Tax season comes and goes quickly. Before we know it, the next one will be upon us. If you have questions about your tax return or want some tax advice before filing, call an R&R expert. Not only do we provide tax help with IRS audits but we also guide people through regular returns, proper filing, and all things tax-related.
Call an R&R tax expert today and learn more about how to make the most out of tax season.