Many taxpayers, whether they are just starting their taxes or have already filed, are curious about audits. It’s natural! But the actual risk of being audited is greatly overestimated by the general public. In fact, less than 1% of taxpayers are actually audited. There are many tax audit misconceptions out there, so were sharing the truth about audit myths so you file confidently and rest easier!
Myth #1: The IRS is watching your every move. No, that’s Santa Claus’s job. As a matter of fact, the IRS has very little information about you other than what is reported to them each year through forms filed regarding your income, health insurance status and some tax deductible expenses like mortgage interest. The rest of their information comes to them when you file your tax return. Most audits are triggered by the matching process between what has been reported to them and what you report.
Myth #2: Certain tax deductions will trigger an audit. Some taxpayers forgo valuable tax deductions, such as the expenses of operating a home office, because they are afraid that doing so would bring the IRS knocking on their door. There may have been some truth to that in the past, but these days so many taxpayers work from home on a regular basis, the IRS is realistic about its necessity. In fact, they developed the simplified home office deduction because so many eligible taxpayers were avoiding taking the deduction.
Myth #3: Every letter from the IRS is an audit. Many taxpayers think every letter received from the IRS is an audit, but actually not all correspondence received from the IRS is an audit. The IRS actually has three separate forms of communication and fact-checking when it comes to your tax return – an adjustment letter that notifies you that an adjustment was made to your tax return, a correspondence audit which is an audit through the mail asking for clarification of something in your return, and an examination audit.
Myth #4: If I make a mistake, I may go to jail if I reported something wrong. In truth, very few people go to jail, unless they’ve committed massive fraud. At worst, you may see an adjustment made to your tax return and or correspondence asking for clarification of something in your return.
Myth #5: An audit will always cost you money. This may shock you, but every year, many thousands of taxpayers walk out of an audit with the government owing them. In 2015, almost 40,000 audits resulted in refunds totaling nearly $1.1 billion. And 9% of field audits and 12% of correspondent audits end with the IRS finding that everything is just fine and there is no change in the taxes at all.
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