Common Mistakes To Avoid When Facing A Tax Audit For Personal Or Business Filings
Nobody ever loves it when Uncle Sam comes knocking, and the tax season opens a channel for the big brother to be at your door. For most Americans, there is an ingrained fear about tax audits that often leads to costly mistakes that could have been avoided. Unfortunately, it is these mistakes that often make the taxman take extra interest in the red flags that saw them settle on you.
While anyone can be a subject of an audit, how the process is handled ultimately makes all the difference. Generally, if the IRS realizes that you are trying to play games or hide something from them, they become more curious. This then results in them carefully re-examining your returns over the past years as they seek to find more substantial errors.
At a time when the 2017 Rasmussen Poll has shown that a quarter of Americans are worried about tax audits, there is a need for clarity about the process. A fact that has to be accepted is that the IRS handles more than 146 million individual taxpayers in the USA, and from this, less than 1% gets to be audited. From this number, a significant percentage is often random audits as the tax body looks to have better information on taxpayers. The recent Tax Cuts and Job Acts (TCJA) have further brought about significant changes to the nation, making it harder for taxpayers to make mistakes in their fillings. Nevertheless, some red flags raise the risks of being audited, and even then, there is sufficient room to handle the process correctly.
Primarily, if there is a tax audit, there are common mistakes that you must avoid if you expect the process to run smoothly. Among the things to avoid are:
- Panicking. To survive a tax audit, you need clarity of mind, and panicking will only make things worse for you. Receiving a letter from the IRS does not make you guilty and should be handled as a second phase of filling your taxes. Even if you are aware of noncompliance with the IRS rules over the years, maintaining the peace of mind will give you an edge during the process. This is because by panicking, you can easily make costly mistakes leading to hefty fines or at worst sentencing for tax evasion.
- You have your books and records in a mess. Most taxpayers assume that by having books and records that make it hard for auditing, they automatically get to win against the IRS. Truth is such an act will only lead to more problems as the IRS agent will now shift their focus on your bank accounts. To avoid the disadvantages of such a move, a rule of the thumb is always to have a financial professional reconstruct your financial books and records when facing an audit. Only then will it be possible to prove that any mess in the original accounting was corrected as the burden of proof is on the taxpayer.
- You are getting to face the audit alone. This is the most costly mistake that many people who have to face an IRS audit popularly make, and in the end, pay heavily for it. As a taxpayer, you have legal rights that must be fully utilized in such instances to avoid taking unnecessary risks. Whether you have been deliberately making mistakes when filing taxes or not, the government auditor has a sharp eye for errors. As such, the confidence you had to face these seasoned professionals alone can be shattered in an instance.
To avoid such a situation, a must-have partner is an IRS tax audit lawyer with a deep understanding of the legal and financial aspects of these cases. This is not a time to rely on your accountant or a CPA as they do not have the much-needed attorney-client privilege. This means that when a push comes to a shove, they will easily turn and become government witnesses. On the other hand, an IRS tax audit lawyer gives you confidence in a partner who can be trusted with any information. The legal professionals will then leverage on their legal and taxation knowledge to keep you off any traps by the IRS and make the audit less demanding on you.