Are you audit material? The deadline to file your taxes is just weeks away, so be careful when you itemize.
It's the most dreaded letter a taxpayer can receive. You may know the one which starts out with, "Dear taxpayer, the information you provided to us does not agree with the information we received from other sources, signed the IRS."
You've just joined a group large enough to form their own club. Though you can't turn down its membership, there are dues to pay.
"You're going to want your tax advisor with you, so you've incurred a few whether you like it or not," said Bill Roof, a tax advisor with DK Advisors.
In 1998, the Internal Revenue Service restructured how it handles audits. The number of audits went down with just one out of every 80 filings in that year audited. Last year more than one million returns got the red flag.
"The easiest way to avoid being audited is to pay attention to those little white pieces of paper you get early in the year. The 1099s, the W-2s, and the K-1s," Roof added.
Recently, the tax agency decided to spread the wealth evenly by re-evaluating its random, line-by-line audits. The most common and easiest to deal with audit can be done through the mail. It asks for more information that can be sent back with a stamp.
More serious, you're asked to meet with an examiner at an IRS District Office. If this happens, you should be prepared to bring all documents that explain your deductions.
Then there's the field audit, which is more wide-ranging inside a person's home or business. Tax preparers say, don't let this scare you into not filing for credits or taking legitimate deductions.
"Do not be afraid of an audit. If you've got legitimate deductions, you need to tag them," Roof added.
If you're contacted for an audit, it doesn't necessarily mean you owe. You just need proper documentation. However, when you get a notice of any type of audit, you should respond immediately.
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