Understanding The Meaning Of IRS Audit
Receiving an IRS letter in your mail can be pretty intimidating. Most employees owe taxes to the government at the end of the year but not every tax return is subjected to audit. If you have been unfortunately selected, do not worry because IRS is only ensuring that you have paid the correct amount of tax.
An IRS audit is basically an in-depth review of the financial information and accounts. It is less likely for an individual to be audited because IRS focus is more on business income. Some businesses make the effort to undergo audits from accounting firms to make sure that books are up to date and there are no mistakes in the entries.
In some instances, being subjected to audit does not mean that a problem has been discovered. The automated system of IRS selects tax returns randomly. Even if you receive a letter from the IRS, don’t be afraid because the problem might be a minor one or in some cases, there is really no problem. Sometimes, a business may be audited because someone they made a transaction with has been audited.
On the other hand, there are situations that increase the likelihood of being audited like a no income tax return, reporting a $10 million income, filing an estate tax return for assets amounting to more than $5 million or filing an international return. Because of cuts in the funding of IRS, the agency has to find their resources where it counts and this means businesses that owe the government lots of money.
If you receive a call from a person claiming he is from the IRS and, it is most likely a scam because IRS sends notices through mail. The IRS letter will tell you the documentation you should bring and the records they require. If there is an unintentional mathematical error, you just make the corrections and you are done.
When you are subjected to a comprehensive tax audit, tax audit insurance will cover the professional fees incurred as result of the review and investigation of your filed return. While the possibility of being audited is rare, it is still important to work with audit insurance company for your protection.