Two of the most feared and hated words in the English language are “tax audit.” Each year, people worry about whether the IRS may target them for an audit or not. While you definitely want to be sure you prevent an audit and take the proper steps to do so, you don’t have to worry. This short guide is going to explain IRS audits and tax collection problems and the top five reasons a tax audit is nothing for you to sweat over.
1. They are Extremely Rare
The odds of an IRS audit happening to you are only about 1 in 150. Or put another way, that means you have a statistical chance of 0.5% of an audit happening to you. Not only that, audits are typically targeted towards individuals who make over $200,000 annually, so if you fall in the middle or lower income bracket, you are even less likely to be a target.
2. Audits Do Not Automatically Equal Trouble
Just because you are audited, it doesn’t actually mean you are in trouble and have to pay a penalty. Essentially, the IRS is able to look at your last three years of tax records (more if there is something particularly significant). Many audits are actually done over the mail and it’s simply the IRS wanting more paperwork to check consistency and other records. That does not necessarily mean you’re in trouble. Think of it more as clarification then as a potential problem.
3. For the Sake of Financial Profiling
It’s also important to note that the IRS also conducts random financial profiling so it can get a better understanding of the American tax landscape. What they are looking for is data to understand the different monetary habits or different income brackets, professions, and other details. They are checking up to see that things like spending and deduction line up with other people in your same bracket.
4. More Thorough Audits Still Doesn’t Mean You’re In Trouble
If your tax audit should move from mail to a field audit, it is once again, not a reason to worry. This happens particularly to small business owners who have expenses that may be a bit hard to understand on paper. For example, if you claim a deduction for a home office, but work out of a several thousand feet building, the IRS might want to get a picture of this. You may still be eligible for the deduction, they just need to see it.
5. Honest People Don’t Have to Worry
The IRS is not out to catch you and put you in jail. It knows that people make mistakes especially because even the 1040EZ form is still a rather complicated thing for the average person to fill out let alone if you are filing for yourself, your business and more. If you have tried to be honest and have consistent proof of this, then you’ll be just fine.
Five Reasons Not to Fear a Tax Audit
A tax audit is never going to be a picnic, but you don’t have to worry about them either. But if you want to prevent an audit from happening to you as well as find ways to reduce your taxes and increase your return, then you’re going to need some professional assistance. At IRS Solver, we can help you prepare an audit defense along with minimizing your tax preparation fees. Contact us and see how our tax resolution team can help you sort any IRS challenges so you can rest easy.