There is only one thing worse than receiving notice of a tax audit: receiving notice when you have reason to believe that you may have done something wrong.
There is no denying the fact that a tax audit can be both unpleasant and stressful. Despite your feelings, you don't have any choice but to supply the IRS with the information they require. Neglecting to do so is only going to put you in a worse situation.
While there is nothing you can do to prevent a tax audit, here are some of the top triggers:
- Failing to report all your income. If the IRS has any reason to believe that you did not report all your income or underreported your income, your chance of an audit is much greater.
- Neglecting to understand the rules of foreign accounts. You can have foreign accounts, but you need to know how these should be treated with respect to reporting.
- Excessive business deductions. There is nothing wrong with claiming business tax deductions, as long as they are legitimate and you can back them up if need be.
- Earning more than $200,000. It may not be fair, but those people who earn more than $200,000 in a given year are more likely to face a tax audit. There is nothing you can do about this, outside of ensuring that you follow the tax code.
You don't have to do anything in particular to trigger an IRS tax audit. This happens at random.
If you find yourself dealing with an audit and unsure of what you should and shouldn't be doing, it's important to learn more about your legal rights. One of the biggest mistakes you can make is providing the IRS with more information, either via in person or via mail, without knowing what is required of you or your rights as a taxpayer. This could lead to more trouble in the future.