The word “audit” alone is enough to spread some serious anxiety for many people. Whether you are an individual or a business, the thought of the Internal Revenue Service, or IRS, combing through your finances is a scary one. It is even scarier if you are uncertain about what they will find. Taxes are confusing, and there is a lot of margin to make mistakes and slip up.
There is a lot of misinformation about audits because the general response to them is fear. However, an audit isn’t necessarily a terrible thing, and many of the rumors and myths surrounding them are just that: rumors and myths. The IRS is a massive body, and they have rigorous regulatory procedures and audits to ensure compliance to these procedures.
As we move past the filing of taxes, audits are likely on many people’s minds. Let’s look at five different myths surrounding IRS audits and why they aren’t true.
5 Myths Surrounding IRS Audits
Making Lots of Deductions Increases Audit Risks
Deductions are incredibly important to minimizing your tax spend. There are a lot of credits and deductions the average person can claim that will dramatically reduce their taxable income. However, many people are hesitant to claim these credits and deductions because they fear it will leave them vulnerable to audits.
This isn’t necessarily true. This would be true if people are claiming deductions and credits they aren’t eligible for. This might flag the IRS’ attention and spring an audit. However, if you or your accountant are sure you are eligible for the deductions and credits you choose, there is no risk of claiming them. The only risk is filing false returns.
Audits Automatically Result in Paying Large Fees
In general, there is an assumption that if you are audited, you are likely to have to foot a large bill over to the IRS. People assume that the whole purpose of an audit is to get more money out of them, but that is not the case. An audit ensures there are no irregularities and oversights, and it doesn’t need to end with paying more.
In most audit cases, it is a quick fix that is easily handled. There is a significant likelihood that there will be no more money paid to the IRS if you do the right things. In some cases, an audit will reveal deductions or credits you missed and even lead to a refund.
Only Businesses and Wealthy People Face Audits
If you don’t own a business or bring a huge paycheck, you might assume that the IRS isn’t interested enough in your taxes to pursue an audit. Many people believe that audits are reserved for businesses and the wealthy, people and organizations with huge holdings that have a higher net worth.
This is certainly not the case. Any taxpayer is vulnerable to an audit any year. While higher net worth people and businesses make for bigger IRS targets because their mistakes are more dramatic, the average person can get audited too. Being careful and transparent is the best path forward to avoid this situation.
Accountants Ensure No Audits
Accountants are invaluable assets for taxes and bookkeeping, whether you are a business or an individual. They understand taxes inside and out and are the best possible option to help you get your tax return done properly. However, just because you use an accountant doesn’t mean you are audit-proof.
Accountants will do their best, but sometimes it is the fault of the person hiring the accountant rather than the accountant. You can still be audited if you don’t declare assets or provide incorrect information to accountants. Beyond that, the IRS has routine compliance procedures that involve audits, and even an accountant can’t save you from these.
I Should Handle Audits on My Own
There is a temptation many people have when faced with an audit to handle the situation entirely on their own. Even if you are confident in your tax knowledge, the reliability of your returns, and the accuracy of your business’ books, having a trusted professional to help is a must. With audits, a tax attorney will go a long way.
Tax attorneys are both legal and tax experts and any time you are in an auditing situation, having one of these professionals acting on your behalf is a must. A tax attorney can help by acting as your advocate to the IRS. They’ll negotiate with the IRS, ensure fairness for you, and help you throughout all legal aspects of the situation.
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