IRS Audits Unveiled: What You Need to Know and How to Prepare

IRS audits can strike dread into the hearts of even the most diligent and fearless taxpayer, but understanding and preparing for an IRS audit can make a significant difference in terms of stress levels. This is why we’re exploring the significance of IRS audits, the different types, as well as the audit triggers and the process to demystify the process and help you successfully navigate an IRS audit.

 

Types of IRS Audits

There are three types of IRS audits: field, office, and correspondence. Office audits are conducted at IRS offices as they involve a more comprehensive review of your tax return. This type is considered less intrusive than a field audit. A field audit is the most comprehensive type of audit and is conducted in person at the place of residence or business. A correspondence audit is the least invasive audit experience, as the IRS will request documentation or clarification through written correspondence.

 

Triggers for an IRS Auditor

There are many factors that can trigger an audit: red flags, random selection, or even factors specific to an industry. With random selection, a computer algorithm chooses a random person or company and it’s not something the person or company did or didn’t do. As for red flags, unreported income, discrepancies on a tax return, misclassifying employees, or unusually high deductions are red flags that can trigger an audit. In certain industries, there are some businesses that are more prone to audits due to their unique financial characteristics, particularly those that work solely with cash.

 

How to Prepare for an Audit

The initial action you’ll want to take once you receive the audit notice is to sort through your financial papers, which include receipts, tax forms, bank statements, and other backup documents. Once that’s underway, reach out to a tax attorney or CPA, as they can help navigate the audit and represent your interests. It’s crucial to promptly respond to the IRS’s document request professionally and precisely.

 

IRS Audit Process and What to Expect

The IRS audit process typically begins with a letter notifying you of the audit, and the letter itself outlines the purpose, scope, and documents they’re requesting. Once you have gathered all the requested documents, it’s a good idea to review your tax return for the year or years under the audit to understand the areas of scrutiny. After that, you provide documentation to the IRS, whether the audit is conducted onsite or remotely, but make sure to provide clear and concise documentation to support your tax return. After the auditor has completed their examination, they will communicate their findings, and there are three potential outcomes from the audit. These outcomes include adjustments, tax liabilities, or no changes. If you disagree with their findings, you’re allowed to appeal the decision.

 

Your Success is Our Priority

An IRS audit is a daunting experience, but seeking assistance and understanding the process are your best defenses. Let us at Taurus CPA Solutions be your financial partner and experience the difference we make with us by your side. For expert guidance, personalized solutions, and peace of mind, reach out to us today to make your success a priority.