May 06, 2018
A tax audit occurs when the Internal Revenue Service (IRS) wants to verify the accuracy of your income and deductions. Oftentimes, the mere thought of a tax audit is enough to make a person's heart race. Yet those who understand the ins and outs of tax audits can prepare accordingly.
Now, let's take a look at five key questions about tax audits.
Recent data indicates those who report no annual gross income (AGI) have about a 5% chance of being audited. Comparatively, taxpayers who earn an AGI of $10 million or more face about a 16% of a tax audit. And for those who earn between $1 and 199,999 annually, the odds of being audited are less than 1%.
The IRS sends a notice via mail to inform a taxpayer if he or she is being audited. If you receive this notice, you'll have about 30 days to respond. And if you fail to respond, you could face an immediate investigation and penalties.
The answer to this question varies. The IRS will inform a taxpayer about any information it requires, and you should provide the IRS only with the information it requests. Because if you go above and beyond the call of duty to provide additional information, the IRS could broaden the scope of its tax audit.
Generally, a tax audit will take at least one full day to complete. It is important to note, however, that the total amount of time required for a tax audit depends on the complexity of the audit and the organization of your financial records. Thus, if you strive to comply with all IRS requests and provide the IRS with immediate access to any required information, you may be able to speed up your tax audit.
There is no solution to prevent a tax audit. Fortunately, there are several things that you can do to reduce your risk of being audited. These include:
Ultimately, there is no telling when you may be audited. But if you keep accurate tax records and follow the IRS's instructions, you'll be able to handle a tax audit with ease.