What Is a Tax Audit?

A tax audit is a thorough inspection of your tax returns and records by the Internal Revenue Service or other tax agency. The purpose of it is to verify the accuracy of the return you filed. Although it may feel like the tax agency is “coming after you” many audits result in “no change” – where the IRS of other agency accepts the return as filed and no additional taxes are owed. Below, we are going to examine what may trigger an audit and what you should do if you are chosen to be audited.

The First Step

First of all, do not panic. Audits are common and can often be resolved without too much difficulty. Second, do not ignore the audit. Instead, gather up your documentation (this is why experts advise keeping copies of all tax documents for several years) and contact a tax specialist, such as Common Law PC.

What Will Spark the Attention of the IRS?

Many audits result from a mismatch between the information you put down on a return and the information the IRS or other agency has in its records. W-2s, 1099s, and other information returns are designed to give tax agencies a method to verify tax return numbers.

Other items that are “red flags” are tax return entries that are excessively large or small compared to the overall return. For example, a $20,000 charitable contribution on a tax return that only shows $10,000 of wage income would likely raise some eyebrows.

For our business clients, sales taxes and payroll taxes are common areas where we see audits. Those taxes are complicated and it is easy to make mistakes that trigger audits.

Don’t Face This Alone

You want the services of a tax professional to help you work through the audit process. Having a lawyer like Common Law PC can make the process much less stressful and help reduce any negative consequences.