Even just hearing the words “tax audit” can put people on edge. Completing your tax return can be complicated enough, and the idea of having it reexamined can make things even worse. But it’s important to know the facts. There are a few common myths that most people have never questioned. Make sure you know what a tax audit is really all about!
Are You Thinking About Tax Audits the Wrong Way?
The IRS has full authority to enforce the tax code. Yet it’s all too easy for taxpayers to forget what that really entails. Let’s clear up some of the tax audit myths.
Myth No. 1 – You’ll only get audited shortly after you file your annual tax return.
Truth be told, the IRS can go back to look at tax returns indefinitely when fraud is suspected. Typically, though, they’ll remain around three years. We can expect audit activity to pick up a couple of months after the filing deadline for the most recent tax return.
In the event of an audit, you’d want to be prepared. One best practice is to keep your supporting documents for a minimum of three years. But copies of your tax returns would ideally be saved forever—just in case.
Myth No. 2 – If you do get audited, the IRS would let you rebuild the necessary records.
Having a good filing system can be a major asset when you’re being audited. Holding on to your tax receipts and proof of deductions will help you defend your case to the IRS. Otherwise, you’ll just have to negotiate with the IRS to set a “reasonable estimate” for what you claimed as deductions. They won’t necessarily wait around for you to find the proper documentation. Not to mention, it might not even be possible to get receipts for transactions that happened years in the past.
Myth No. 3 – Only certain items are eligible for audit by the IRS.
The audit can expand depending on whatever the IRS finds in your return. It won’t exactly be limited to one aspect of your return. The more documentation you have to share, the better. Answer their questions promptly and accurately. Otherwise, you could see the audit balloon into other areas.
Myth No. 4 – Tax audits only happen to people who are wealthy.
Yes, the probability of being audited is higher for higher income levels. But that doesn’t mean you’re exempt from an audit solely based on your tax bracket. Everyone should try to be prepared for an audit. This can be a dangerous myth that just leads people into trouble. Keep accurate records and always make sure you double-check the information on your return.
Myth No. 5 – Getting audited is a nightmare!
While it’s not fun, an audit doesn’t have to mean that your world will start crashing down around you. Just get a team of tax professionals on your side! They can help sort through the requests from the IRS and give you an honest assessment of what’s in store, minimizing your stress and working to wrap up the audit as soon as possible.
If you need help for your tax audit, or if you have any questions about your tax situation or return, please know that we’re here to help! NSO & Company serves clients year-round. Feel free to send us a message so we can schedule a time to talk!