Getting mail from the Internal Revenue Service (IRS) is enough to give anyone heart palpitations. If this letter is sent to inform the recipient of a potential audit, those heart palpitations can turn serious.
All joking aside, dealing with the IRS is a serious matter.
Why am I getting audited?
If you are faced with a notification of an impending audit, a number of questions may race through your mind. One of the first is likely, “why me?”
Audits are chosen for a number of reasons. Some audits are the result of random selection and others are related to other examinations. The IRS notes that other examinations can include a review of returns from business partners. If your business partners are under investigation, your risk of an audit goes up.
How can I reduce the risk of getting audited?
There are some steps that you can take to proactively reduce the risk of an audit. A recent piece in the Huffington Post discussed some options. Four of the more helpful tips included in the piece are as follows:
- Honesty is still the best policy. Do not try to hide income or other assets from the IRS. Doing so isn’t just unwise; it could lead to criminal charges and potential prison time.
- It is a good idea to keep your own records. Give to charities? That’s great, but make sure you keep good records of these donations. Also hang on to invoices and receipts from other deductions listed on your returns.
- Review your filing before submitting. Take a moment to double check your numbers before sending in your taxes. Compare your numbers to your source documents and use a calculator to double check your math. A simple and avoidable error could lead to a red flag by the IRS, increasing the risk of an audit.
- Consider filing electronically. The IRS states that errors in electronic submissions of taxes are lower than paper submissions. Again, reducing the errors in your tax filing can reduce the risk of an audit.
The tax bracket you are in also plays a role in your audit risk. The Huffington piece notes that being wealthy does not always pay. In this case, finding yourself in a wealthier tax bracket can increase the risk of an audit.
What should I do if I am audited?
Even when precautions are taken, audits happen. If you are audited, it is wise to contact an attorney. Your lawyer will work to preserve your rights and better ensure your interests are protected.