What is a tax audit?
A tax audit is an investigation by a governing body into the tax history of an individual or business. Sometimes audits are conducted due to the agency finding something in a person or business’ tax returns that it finds suspicious. However, audits can be conducted on anyone regardless of how good their return history is, due to random choosing by the agency.
Audits can vary from simple to difficult, depending on the findings by the agency and the reasons for the audit. A simple audit can be conducted simply by the person being audited bringing in supporting documents for the dates in question, meeting with an auditor. As long as everything adds up the matter will be closed.
Audits can get difficult and stressful when the reason for the audit is suspicion of a person withholding income information, or if the person simply did not pay taxes at all, known as tax evasion. These audits can lead to big fines, trials, and quite possibly even time behind bars if discrepancies qualify for such sanctions.
Due to their sometimes random nature, tax audits, are not always avoidable, no matter how perfect a business or individual’s tax history is. And just like with most situations, evidence is the most important defense one can have when faced with an audit. It isn’t enough to have been current with your payments, one must always keep records such as receipts to validate deductions, and pay stubs to prove income. If you have evidence to backup your claims, a tax audit can be a quick and easy process.
Tax audits are usually understood to refer to an investigation into the background of tax returns submitted by an individual or business to a tax agency. The idea of a tax audit normally conjures up feelings of anxiety even in persons who believe their tax documents are perfectly in order. While it is true that a tax audit may be called due to some perceived irregularity in one or more returns, it is also true that an audit may be done simply as part of a random sampling. Most governments around the world include an agency that is charged with overseeing the process of tax collection from individuals and companies that reside within the jurisdiction. For the most part, the agency focuses on defining the processes involved with calculating and paying taxes. However, most tax agencies also review tax returns routinely as part of the process of correcting minor errors that may be present on any given return. As part of the review process, tax agencies may use a policy of randomly selectin
Conducted by the Inland Revenue Department (IRD), a tax audit is an examination of a taxpayer’s financial affairs to confirm that they are complying with the current tax laws and consequently have paid the correct amount of tax. A tax audit might simply be a confirmation of GST registration or it could be a full and thorough examination of all business and personal records. The IRD selects a taxpayer for a tax audit for a variety of reasons; these include: * To gain a more detailed understanding of your business accounts or tax returns. * To check someone else’s records and match them to your records. * Information received in another audit could suggest that your records should be checked. * Your compliance and payments record may suggest further detail is required. * The IRD may have selected to audit specific industries. * A particular issue or problem is affecting a group of taxpayers. * Where you live, or run your business can influence the decision. * Local knowledge, perhaps ari
An examination of a taxpayer’s return or other transactions. An IRS audit or State audit is performed to verify the correctness of a filed return. The Internal Revenue Service and State taxing authorities accept most tax returns as filed. However, they audit some returns to determine if income, expenses, and credits are being reported accurately. If your return is selected for an IRS audit or State audit, it does not suggest that you made an error or are dishonest. With the IRS, returns are chosen by computerized screening, by random sample, or by an income document matching program. Most individuals will agree that it is no fun dealing with the taxing authorities like the IRS, especially in a challenging situation. Being under an IRS audit of State audit is one of those situations. Fortunately, all taxpayers have a right to representation before the IRS and States; no one has to face an audit alone. As a taxpayer, you have the right to be treated fairly, professionally, promptly, and
An audit is when the IRS assigns an agent to review your tax return and verify all the claims made on your return for accuracy. An audit will require you to provide records proving that you earned the money, made the deductible purchases, and invested the way that your tax return suggests. If you’re organized and are able to provide these documents, an audit is nothing to fear.
