Now that the deadline for filing our taxes has come and gone, are you worried that you’ll be among the 1-in-100 people singled out for a tax audit? Before you stress about the potential fines and jail time that come with not paying your taxes, here’s what you need to know about tax audits:
- Tax audits are NOT random. Meaning, if your return gets flagged, there’s usually a good reason. It could be for anything from a single math error - to the fact that someone has identified you as a tax cheat! Or, the IRS may just want to see solid proof of an unusual charitable contribution, for example. Whatever the reason, an audit just means the IRS wants to take a closer look at your tax records.
- How do you find out about a tax audit? The IRS will notify you by mail. You’ll get a letter explaining what the problem is, and the exact records you’ll need to clear the problem. Then, if you already have copies of those records, just mail them in and you’re done! Otherwise, you’ll need to meet with an agent to review your records in person. Just know that the IRS will never contact you about an audit by phone or email.
- Not everyone who gets audited OWES money. In fact, IRS statistics show that about 1-in-7 tax audits result in people walking away unscathed, or getting a refund.
So, what’s the key to a successful audit? Being prepared. In general, experts say the more documentation you have, the more likely an auditor will cut you some slack if your numbers don’t add up. In fact, they may even offer you a deal if you owe money. But if you show up with a box full of random receipts, for example, auditors are going to think you’re unorganized – and experts say you’ll have no credibility when you try to explain errors on your return.
Even if you don’t get one this year, it doesn’t mean you’re off the hook. That’s because the IRS has up to three years to initiate an audit.
So hang onto your old receipts, stay organized, and good luck!