The idea of a tax audit concerns many of us. And why wouldn’t it? The thought of the IRS coming after you, telling you that you owe more money and potentially garnishing your wages can be very daunting. Before you get too worked up about a tax audit, here are three things you should know:
1. You Probably Won’t Be Audited Ever
According to reporting from Kiplinger, you had a 1-in-119 chance of being audited in 2015. More than 99% of individual tax returns go through the system without being audited. That means that you probably aren’t going to be the subject of a tax audit.
For the most part, the IRS takes a look at certain types of tax returns and deductions when deciding which should be audited. For most people, an audit isn’t likely to ever be a reality. This can help you feel a little more confident. There is, of course, always the chance that your tax return will be selected for an audit, but it’s highly unlikely.
2. Most Audits are Handled Through the Mail
When we picture audits, we think about stern-faced government employees staring at us over a desk. However, the truth is that most audits are handled through the mail. In many cases, all you need to do is send some specific documentation that is requested and then go about your day.
While there are some audits that might require you to visit an office, or there might be a time when an IRS representative performs a field audit, most of the time an audit can be handled through the mail. Unless you need to explain something more in-depth, there usually isn’t a need for any type of in-person interaction. Just mail a copy of your documentation (make sure you retain something for your records), and move on.
If you have an accountant, in many cases he or she will take care of the audit for you. Just let your accountant know and provide what is needed, and someone else can take care of the rest. Having a representative can be helpful, since a knowledgeable tax professional knows exactly what to do in these situations.
3. Good Records are Essential
Keeping good records every year is essential. Even though there is a very small chance that you will be audited, the chance is still there and it’s best to be ready. This means that you need to keep good records so you are prepared for an audit. If you have good records, and you’re honest about your situation, most audits can be resolved quickly. Before you file your taxes, double-check to make sure you can back up all the assertions you make. Do you have records that can be used to verify your claimed deductions and credits?
Keep your records in a safe place so that they can accessed if you end up needing them. You’ll feel better about the situation, enjoying peace of mind, knowing that if you are audited, you have what you need to placate the IRS.