An IRS audit is a review of a taxpayer’s accounts and financial information to ensure compliance with tax laws. While audits can seem intimidating, understanding the process and knowing how to prepare can help you navigate it successfully.
Common triggers for an audit include:
To prepare for an audit:
Certain factors can increase the likelihood of an IRS audit. One common trigger is discrepancies between the income reported on your tax return and the information the IRS has from third-party sources, such as employers or financial institutions. High deductions relative to income, especially in categories like business expenses, can also raise red flags. Additionally, consistent losses in a business or claiming a high number of dependents compared to others in similar financial situations may attract attention. Random selection does occur, but most audits are initiated based on specific indicators that suggest a closer examination is warranted.
If you receive an IRS audit notice, carefully read the letter for details on what documents and information are required. It's advisable to respond promptly and consider consulting a tax professional for assistance.
The duration of an IRS audit can vary significantly, typically ranging from a few months to over a year, depending on the complexity of the case and the availability of information. Factors such as the type of audit and the responsiveness of the taxpayer can also influence the timeline.
An IRS audit can be triggered by various factors, including discrepancies between reported income and third-party information, large deductions, or unusual transactions that raise suspicion. Random selections and certain red flags in tax returns also contribute to the likelihood of an audit.
If you receive an IRS audit notice, review the information carefully and gather all relevant documents to support your tax return. It may be beneficial to consult with a tax professional for guidance throughout the process.
