For many taxpayers, especially small businesses and sole proprietors, the thought of an IRS Audit is the scariest thing.
But if you’ve filled your taxes properly and have all relevant documentations and proofs to correspond your claims, you don’t have to worry much.
Over the years, we’ve noticed that the IRS audits rate is quite low but it still induces fear among businesses. If you’re still unsure about an IRS audit, you can find a tax lawyer who can guide you through all relevant information.
We’ve listed below 6 common myths about tax audits which you need to be wary of.
- E-filing Taxes And Mistakes Triggers Audits
The E-filling platform is comparatively safer than paper filed taxes, since it reduces the chances of human error and prevents any calculation mistakes. If you think that e-filing your tax or making any mistakes lead to audits, you might want to rethink.
The IRS randomly selects taxpayers for audits based on computer algorithms. Yes, a mistakenly filed tax might lead to double-checking but it’s not a clear indication to receive an IRS audit notice.
- Late Filing Taxes Increases Audit Chances
If your paperwork requires more systematic analysis and is getting complicated, you should definitely ask for extensions to avoid making a mistake. A late filing is much better than a problematic and error induced filling, which is done just to meet the deadline.
The IRS only looks at inconsistencies and ratios that are typically higher or lower than normal.
- Showing High Losses Every Year Will Result In Audit Notice
This can be partially true, but not always. If you’re running a business, you should be getting some profit, otherwise why are you in the run?
However, if you have legitimate issues, like you are a start-up or you have a seasonal business, it is accepted that you are operating on yearly losses.
You should have all receipts and claims to prove why you’ve taken deductions in paying taxes. If the claims are legitimate, you won’t get under the IRS radar.
- The IRS Audits In Person
This is a very common myth among taxpayers that the IRS would send its agents personally to your offices because they want to see you sweat.
The IRS has limited resources and does 70 percent of its audits through mails. And if any information clarification genuinely requires an in-person meeting, the agent will schedule it at your business location.
You shouldn’t be alarmed since most of these meetings are cordial and drama-free. They just need to check if you’ve mentioned the correct expenses and information based on your business.
- A Phone Call From IRS Office Is An Automatic Scam
Many callers claiming to be IRS agents are mostly frauds, but legitimate IRS agents can also try reaching you through a phone call. If you receive any such call, you need to make sure you don’t give any information without any proof.
You need to ask for the caller’s identification and contact details and then contact the IRS agency for confirmation. You can get back to them once you’ve verified the information given by them.
Anyways, the IRS will never ask for any personal or banking details over the phone so you need to be more cautious.
- A Tax Audit Notice Automatically Means You’ll End Up Paying More Or In Jail
If you’ve received an IRS audit notice, this does not mean you have to pay more or you’re going to jail. Usually, audits only involve clarifications and double-checking the standard information updates.
Sometimes it can even mean a refund entitlement or reducing your business owes. And more luckily, people are not jailed for owing taxes. Yes, you might be fined and harshly punished if you’ve intentionally cheated in filling your taxes.