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Why Does The IRS Audit Tax Returns & How to Prevent It

Why Does The IRS Audit Tax Returns & How to Prevent It

By on Nov 26, 2016 in IRS Audit | 0 comments

why-does-the-irs-audit-tax-returns-how-to-prevent-itThe Internal Revenue Service (IRS) is responsible for overseeing the amount of money that is passed through one hand, or bank account to another in the United States. What each taxpayer and business, small or large, must do is report how much all of their bank accounts have earned in a 12-month calendar year. They are also obligated to report how much they dispersed.

Knowing the Difference Between Business and Personal Taxes

Based on these reports, the IRS should have an accurate calculation of how much money the entire country is generating. As you might already know, not every taxpayer is going to pay the same amount of money in taxes. It all depends on how much someone makes annually, and whether that income is business or personal. This is because business tax laws are different from personal tax filings. So, if you operate a business and don’t have a personal accountant to review your books, then you risk the chance of reporting an inaccurate account of your financial status.

Checks and Balances

Many people may not understand how the IRS can even detect that there’s a discrepancy in your annual filing. This is all a matter of checks and balances. As one business has to account for how much money they’ve issued in payroll, the recipients of that payroll budget is obligated to report that as taxable income. So in other words, anything you spend your money on should have a receipt to show for it to prove that you gave your money to a certain entity in exchange for a commodity or service of some sort. And that business needs to account for it.

The IRS Process of Checks and Balances

The IRS will verify whether or not this is accurate. This type of verification isn’t going to happen overnight either. The IRS processes thousands upon thousands of annual tax filings and even with the technological processes put in place today, it still may take years to determine if what you’re reporting is accurate. If it’s not, you can expect to receive a letter from the IRS indicating that they’d like to conduct an audit of your finances.

Why You Should Keep Track of Your Tax Returns

With audits, you may have to account for your financial handlings as far back 5 years, so it’s best to keep a record of all of your tax filings along with supporting documents. The IRS usually conducts audits if something doesn’t seem to add up right on your annual filings. Now, that doesn’t mean that the IRS will conduct an audit based off of numerical miscalculations. 

Other Reasons You Might Get Audited

Verifying that all information in regards to the name on your social security card, name of co-dependents and their legal status all need to be updated and accurate. If one letter is transposed wrong, that sends a red flag to the IRS indicating your filing needs to be investigated a little further. If the IRS finds other discrepancies, they may decide to conduct a full-blown audit.

The IRS also does random audits. It’s determined much like a lottery. So even if you do everything in your power to avoid an audit, there’s a slight possibility that you still may receive a letter from the IRS asking you to verify one little thing, or a lot of things!

If you end up receiving an audit letter from the IRS, contact Success Tax Relief at 877-825-1179 or contact us online to schedule a free consultation.

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