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If there’s one factor many people don’t wish to see in our mailbox, it’s a letter from the Inside Income Service (IRS). Even worse, we don’t wish to get a letter from the IRS informing us that we’re topic to a tax audit.
When you can by no means assure the IRS gained’t audit you, understanding just a few details about IRS tax audits through the tax submitting course of could assist ease your fears. Listed here are some causes not to spend so much of time worrying about it this tax season.
1. Your audit danger is probably going very low.
If you’re within the middle- or lower-income vary, and your taxes are comparatively easy, your possibilities of being audited by the IRS are pretty low. In actual fact, from 2011 to 2019, the IRS solely audited 0.55% of particular person returns filed.
When selecting who to audit, the IRS tends to focus on high-income earners as a substitute. For instance, from 2011 to 2019, the IRS audited 8.9% of particular person returns for taxpayers with incomes larger than $10 million. Taxpayers who’re above-average earners usually tend to be audited as a result of higher-income taxpayers are inclined to have extra complicated returns, and the IRS sometimes collects more cash from them, which might improve their audit danger.
2. A tax audit doesn’t robotically imply you’re in hassle.
Whereas it’s true that the IRS can audit individuals suspected of doing one thing incorrect, that’s not at all times the case. As a part of the audit course of, the IRS audits a portion of the taxpaying public yearly. You will be chosen purely as a matter of probability, even when you did every thing proper.
In different instances, discrepancies in your return will be an audit set off and put you at increased danger of an audit. If the data in your tax return doesn’t match up with the information the IRS acquired from one other supply, equivalent to your reported taxable earnings, the IRS could contemplate that an audit pink flag and provoke an audit. If it’s only a basic math error or typo, you shouldn’t have to fret an excessive amount of — the IRS would possibly merely ask you for added paperwork to sort things on their finish or request an amended return.
3. IRS tax audits typically return two or three years.
If you file a number of earnings tax returns through the years, you could surprise what would occur if the IRS audited an previous return. Would you be capable of discover the mandatory tax kinds and bear in mind all the small print about that tax season?
Happily, you don’t want to fret about audits on tax returns from a decade in the past. In keeping with the IRS, most tax audits are relating to returns filed throughout the final three years. In the event that they discover a substantial error, they might select to return additional than three years. However even then, they seldom return greater than six years.
4. You possibly can scale back your possibilities of an audit.
Sure gadgets in your tax return could entice the eye of the IRS and make you a extra doubtless goal for a tax audit. Some examples of potential audit triggers embrace:
- Enterprise losses which might be really hobbies: For example, let’s say you increase horses or canine and take a loss yearly. On this case, the IRS could disallow it as a result of your “enterprise” solely classifies as a interest.
- Deductions and earnings tax credit for uncommon quantities: As an illustration, when you declare you give a big portion of your earnings to charity by way of non-cash contributions, the IRS could need a nearer look.
- Enterprise deductions: The IRS could take explicit curiosity in unusually giant journey or leisure enterprise bills.
- Massive casualty losses: You possibly can solely deduct losses not reimbursed by your insurance coverage firm, so when you write off a big casualty loss, the IRS could wish to look nearer on the state of affairs.
Regardless of this, don’t be dissuaded from taking a house workplace deduction or casualty loss you qualify for since you’re afraid of a tax audit. Simply remember that the IRS could wish to examine sure gadgets extra carefully and hold your information in good condition in case they do.
Equally, the IRS is much less prone to audit returns which might be free from errors. Utilizing TaxAct® will help on this space. Following the interview questions in our tax software program and inputting all the right info will provide help to simply put together an entire and correct return. To provide you much more peace of thoughts, TaxAct® gives Audit Protection1 to offer audit safety providers on your earnings tax return. Through the submitting course of, you may benefit from our Audit Protection providing. In the event you do and the IRS audits you down the street, an skilled audit skilled will reply to inquiries from the IRS and state taxing authorities in your behalf.
5. If the IRS audits you, don’t panic.
Some IRS tax audits are totally different from what you would possibly count on. The IRS may need extra documentation or a response a few explicit merchandise. On this case, it’s best to reply as shortly as potential and transfer on.
If the IRS requests an workplace or discipline audit, you may collect your info and symbolize your self in case you are comfy doing so. You even have the appropriate to decide on somebody to assist. In the event you file your earnings tax return utilizing TaxAct, you may benefit from Audit Protection offered by Tax Safety Plus1.
You may have sure rights as a taxpayer when topic to an audit. Apart from the appropriate to illustration, you even have the appropriate to know why the IRS is requesting info, to make an audio recording of an interview with discover and to not be repeatedly examined for a similar info.
The underside line
Receiving a letter from the IRS will be scary, however your possibilities of getting audited when submitting an entire and correct return are fairly low as a median filer. Nonetheless, when you’re fearful, there are some steps you may take to assist reduce your possibilities of an audit. Cautious, mistake-free submitting can lower your audit danger, and sustaining correct information will help you confidently navigate an surprising audit. Bear in mind, if confronted with an audit, it’s greatest to stay calm, reply promptly and know your rights as a taxpayer to make sure a good end result.