Americans are terrified of tax audits, and for good reason; these ordeals involve a whole lot of paperwork and, in some cases, can lead to increased tax payments. That being said, a variety of misconceptions surround the auditing process, which might not prove as terrifying as you suspect. Below, we clarify a few common audit myths and shine a light on the reality of the situation:
Myth: Audits Are Common
Thankfully, audits are not nearly as common as most people believe. The IRS dreads this process nearly as much as taxpayers do. Historically, less than one percent of taxpayers have suffered audits in any given year.
Reality: Audits Are More Common For Entrepreneurs
While low audit rates should provide a small source of comfort, entrepreneurs, freelancers, and other independent types should take caution: they are more likely to suffer audits than those with standard 9-to-5 jobs. This isn’t because the IRS is out to penalize entrepreneurs, but rather, because nontraditional income tends to be accompanied by extensive write-offs and deductions. The more complicated the tax return, the greater the chances of an audit.
Myth: Most Audits Involve Face-to-Face Interactions
When ordinary taxpayers picture audits, they imagine humorless IRS agents arriving at their homes to snoop around. In reality, however, the majority of the audit process centers around mailed paperwork. In 2017, for example, 77 percent of audits involved correspondence entirely by mail.
Reality: Most Audits End With Tax Return Changes
Unfortunately, if you are audited, your tax return will likely change. In most cases, this means additional taxes, although exceptions exist. Experts at Accounting Today cite average extra post-audit taxes of $6,790.
If you’re currently dealing with an IRS audit, don’t hesitate to contact the Highland Tax Group. We can provide the guidance and advocacy necessary to ensure a positive outcome.