An audit can be scary if you don’t know what to expect. The fear is perpetuated by people who spread myths as though they are true. If you’re wondering if you’re at risk of being audited, we hope to take some of the fear away from you with this article. We’ll look at some of the myths surrounding audits and some red flags that may get you audited.
Many of the mythssurrounding audits have to do with who will get audited and why. However, you don’t have to be fearful of audits. Let’s look at the top myths surrounding a tax audit.
- An audit is something you should fear:The fear of the unknown primarily fuels these fears. Often people may not even realize they’ve been audited. If you’re wondering how that’s possible, it’s because the most common form of audit is a mail audit, where the IRS simply requests more information, and you return it to them via the mail.
- A professionally filed return won’t be audited: The truth is that even a professional occasionally makes a mistake. Something as simple as transposed numbers can cause an audit.
- Low-income individuals can’t get audited:Anyone can get audited because anyone can make a mistake on tax returns that raise a red flag.
- Filing particular deductions or tax credits will increase the likelihood of you being audited: There are deductions that people refuse to take because they heard that it was a guaranteed audit waiting to happen. Having this happen is giving the government money that should be yours.
- An audit is an immediate process:The IRS abides by a three-year statute of limitations after your return is due. Typically, if you are to be audited, the audit will occur in year two of the three-year statute of limitations. If there are substantial errors, they can choose to extend the audit up to six years.
Now that you understand a little more about the myths people spread about audits, let’s talk about the red flags that can get you audited.
- You have paperwork, even one form, missing or mismatched.
- You made a clerical error or a mistake in your calculations.
- You’re self-employed.
- You make too much or absolutely no money.
- You claim too many expenses or losses for your business.
- You give too much to charity based on the income you claim.
- You didn’t declare all of your income.
- You used cryptocurrency or other digital currency but didn’t claim it properly.
- You took an early withdrawal from your retirement account but didn’t report it.
- You claimed your hobby as a business.
- Your numbers seem too round and, therefore, too good to be true.
- You have cash or other assets off US soil.
- You underreported unemployment income.
- You reported a large number of cash transactions.
These red flags don’t necessarily guarantee you will get audited. They simply indicate a higher potential for an audit.
An audit doesn’t have to be a fearful process. Learn about the myths surrounding the process and the red flags that can lead to an audit.A qualified tax attorney can help you understand your rights and responsibilities. If you’re facing an audit, contact someone familiar with tax law, like the professionals at Guardian Tax Law, to learn what to expect.