While there are very few – if any – Americans that enjoy paying taxes, the majority do so for the sake of following the law and keeping the IRS away. And while most fill out their tax returns honestly and somewhat carefully, it’s possible to make mistakes. If the IRS catches wind of these errors, they may wish to take a closer look at your personal financial information to verify you paid the full amount owed. This is known as a tax audit and, ideally, should be avoided.
The 3 Types of Tax Audits:
When the IRS decides to take a further look at your tax return, income, and deductions, they typically pursue one or more of three basic tax audit methods:
- Mail audits. Regardless of the specific type of audit the IRS chooses to conduct, you will be notified via mail of the audit. Because a mail audit is the simplest type of audit, there is no need to meet an auditor in person. Instead, the IRS will ask for additional documentation, information, and reports to verify the validity of your tax return.
- Office audit. If questions about your return still exist after the mail audit, you may be asked to come into a local IRS office for in-depth questioning. The audit officer will ask a number of questions and ask you to bring multiple documents and statements.
- Field audits. A field audit is much more invasive and usually occurs after a mail audit or office audit could not successfully satisfy the questions your auditor had. In a field audit, an auditor will come to your home and conduct very thorough questioning about everything on your return.
Avoid an IRS Tax Audit
Doesn’t sound like much fun does it? The good news is that there are plenty of ways to avoid tax audits and stay out of trouble. Let’s take a look:
- Just be honest. Above all else, remember that honesty is the best policy. It’s not worth saving a few dollars to tell a lie that may land you in major legal trouble. If you fill out everything honestly and truthfully, you’ll eliminate much of the risk from the start.
- Double check everything. However, even if you try to be honest, mistakes happen. That’s why it is very important that you double and triple check everything to make sure there are no errors. If the IRS catches multiple erroneous entries, it will raise a major red flag. Start by gathering all of your forms, and carefully examine everything before inputting numbers.
- Go electronic. The IRS readily admits that electronic filing is the way to go. They have found that filing your return with the help of a software or automated tool can dramatically reduce the number of errors on a return. As a result, they tend to scrutinize hand-written returns more carefully. According to the IRS, paper returns have an error rate of 21%, while electronic returns have an error rate of only 0.5%.
Use a Tax Consultant
While the three tips mentioned above can help you eliminate some of the risk involved with filing an erroneous tax return, the most important thing you can do is use the help and assistance of a tax consultant. A professional consultant understands the intricacies of returns and knows exactly what the IRS looks for. As a result, they can help you file an accurate return that doesn’t raise any red flags. Here are some of the specific reasons a tax consultant is of value:
- Less worry. A tax consultant can dramatically reduce the amount of stress and anxiety you have about your return. Instead of constantly looking over your shoulder or wondering if you left something out, you can rest knowing you have a qualified expert by your side.
- Time is money. Think about all the time you spend working on your tax return and add up the true cost. How much money are you actually spending? When you look at it this way, a tax consultant’s services are very cost-friendly. Additionally, if you fall under a certain category, your consultant’s fee may be deductible.
- Find tax credits. According to the National Society of Accountants, the average cost of using a professional tax preparation service is $261. If your tax consultant finds even one missing tax credit or deduction, it could offset the entire cost.
Instead of attempting to handle things on your own this tax season, consider using the services of a tax professional. Not only will you gain peace of mind, but you’ll also increase your chances of avoiding a painful audit.