A correspondence audit is the most common type of IRS audit and is generally considered easier to manage than a field audit. A correspondence check takes place when the IRS identifies possible errors in your tax return and sends you a letter detailing each error. These audits can be corrected or explained by sending additional documents to the IRS. If you are audited, you will receive a letter in the mail for security reasons. Scammers often impersonate the IRS by sending emails or leaving phone messages to get your personal information, but the real IRS doesn`t communicate with taxpayers that way, Pohl said. The IRS has several options for reviewing tax returns, depending on the severity of the business audit. However, there are two main types of IRS audits: mail-in audits and field audits. Here are the differences between them. IRS audits are in decline, which reduces your chances of being audited from lean to lean. Even if you get one, it doesn`t automatically make you a scammer.
Before you and your tax professional respond to the IRS or meet with an accountant, take the time to dig up and organize all your accounting documents from the last tax year, said Kimberly Foss, founder and president of Empyrion Wealth Management and author of Wealthy by Design. These include receipts and invoices for income and expenses, bank statements and void checks, books and records, hard copies of tax preparation data and leases or business property titles, she said. If the IRS has requested a review of certain documents, make sure you have them easily accessible as well. IRS audits occur when the IRS identifies errors in a tax return, usually a return filed within the last three years. The IRS can report a tax return for many different reasons, but the most common reasons why you may be audited are the following scenarios: An IRS audit is a review/audit of an organization`s or individual`s financial accounts and information to ensure that the information is reported correctly under tax laws and to verify that the amount of tax reported is correct. “Just respond with the requested information,” he said. “Providing unnecessary or unsolicited information can lead to more questions. and other issues. “The most common error that causes a company to be audited is when the total reported income is less than the sum of the 1099 [payment records] filed for the company,” Beebe said.
The IRS tries to review tax returns as soon as possible after they are filed. As a result, most audits will focus on reports submitted within the last two years. As stressful and overwhelming as an audit may seem to small businesses, there`s no need to panic when you get one. You have to take it seriously, but audits often deal with simple data or reporting errors that the IRS suspects, said Frank Pohl, a shareholder and former lawyer at gunster law firm. It reminds entrepreneurs that not all tax audits end negatively for taxpayers. Depending on the issues in your audit, IRS auditors can use one of these audit technique guides to help them. These guides will give you an idea of what to expect. Open the letter immediately and make sure you understand the information the IRS needs from you, Pohl said. If you don`t have a designated financial advisor, hire an accountant or tax attorney to review the audit letter with you and identify issues reported by the IRS. Dealing with the IRS can be stressful, and if you`re worried about what you might be saying, it`s wise to ask your tax professional to make the conversation for you.
Don`t discuss a problem. Remember that the agent is trained to focus on tax matters. A comment that you consider completely independent of your return could lead you into a thicket. Defending a deduction by saying, for example, that you have made it in the past, could lead to a review of tax returns already filed. Discussing the family`s land vacation could cause the agent to recalculate the ratio of professional and personal miles for your car. or lamenting the problems that caused your child to drop out of college could cost you a tax credit. Fear that taxpayers will get into trouble is the main reason why many consultants recommend sending a representative for review instead of appearing in person. Learn more in our guide to tax audits and how to minimize your risk.
You`ll probably have at least a few weeks to prepare. .