What Are Tax Audits?

Tax audits, while a standard part of the tax system, can often be a source of stress and uncertainty. Whether it's understanding what triggers an audit, knowing how to reduce your risk, or figuring out the necessary steps if you're audited, being well-informed is crucial.

This FAQ list aims to demystify the process of tax audits, providing you with clear insights and guidance on what to expect, how to prepare, and where to seek help. Let's address some of the most common and pressing questions about tax audits.

1. What causes someone to get a tax audit?

A tax audit can be triggered by several factors. These include discrepancies in your tax return, such as income that doesn't match the information reported to the IRS by employers or banks, excessive deductions compared to your income level, or being part of a targeted group for audits, like high-income earners or businesses in certain sectors. Sometimes, audits are also randomly selected.

2. How do I minimize tax audit risk?

To minimize your risk of a tax audit, ensure your tax return is accurate and complete. Report all income, avoid overstating deductions or credits, and provide clear documentation for any unusual or large deductions.

Using reputable tax preparation software or a professional tax preparer can also help reduce errors that might flag your return for an audit.

3. Where do I find tax audit help?

If you're facing an audit, several resources can provide assistance. You can start with the IRS website for guidance on the audit process.

Professional help can be sought from a certified public accountant (CPA), a tax attorney, or an enrolled agent. These professionals have the expertise to guide you through the audit process and represent you before the IRS if needed.

4. Is an IRS audit serious?

An IRS audit should be taken seriously, as it can lead to additional taxes, penalties, or interest if discrepancies are found. However, not all audits are cause for alarm.

Many are routine checks that can be resolved quickly, especially if you have maintained good records and can substantiate the information on your tax return.

5. What is the IRS looking for in an audit?

During an audit, the IRS is primarily looking to verify the accuracy of your tax return. This includes confirming income reported, ensuring deductions and credits are valid and properly documented, and checking that you've complied with tax laws.

The specific focus will depend on what triggered the audit.

6. What happens during a tax audit?

In a tax audit, the IRS will review your financial records and tax return to ensure everything is accurate.

This process can vary from correspondence audits, which are handled through mail and focus on specific items on your return, to in-person audits, which are more comprehensive.

You may be asked to provide additional documentation or explanations for certain aspects of your return.

7. Do I need a tax lawyer if I get audited?

Whether you need a tax lawyer depends on the complexity of your audit. For simple correspondence audits, you might not need one.

However, for more complex situations, especially those involving large sums of money, legal issues, or potential criminal charges, a tax lawyer's expertise can be invaluable.

In many cases, a CPA or enrolled agent can also provide adequate representation.