Since tax season has ended, some individuals need to get ready for the next step…unfortunately this one isn’t much better.
The IRS randomly selects tax returns for audit each year. Depending on what deductions you’ve taken and other characteristics of your tax return, your tax return can have a higher probability of being selected for an audit.
Here’s what you need to know about IRS tax audits.
Types of Audits
There are 3 types of IRS audits:
Tax returns can be audited for up to 3 years. One caveat is that if a fraud has been committed, there is no statute of limitations. They can be audited any time! So be sure to keep your tax documentation for at least 3 years.
Correspondence Audit
A correspondence audit is the most common type of audit. It is also the easiest audit. In this type, the IRS will send you a letter indicating a correction to your tax return which can result in you needing to pay more money or possibly even a larger refund! Or the letter may ask you send additional information in for their review. Either way, this type of audit is simple as long as you maintain your tax documentation.
Field Audit
The second type of audit is a field audit. This type of audit is usually conducted for businesses and is pretty unlikely for individuals. In this audit, the IRS will send a group of auditors to the business to examine their books and other documentation. Basically, they want to ensure that they are not cooking the books.
In-Office Audit
The last type of audit is an in-office visit. This audit will require individuals or businesses to take their tax documentation to an IRS audit to substantiate their tax return information. This can be to prove a deduction or business expenses. These audits are typically more difficult and the burden of proof lies on YOU to prove your tax information.
The bottom line is that you must maintain your tax information for 3 years, even if you think your tax return is pretty basic. You never know if you’ll get audited, but the best way to deal with one is to be prepared.
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