What Happens If You Get Audited?
In case of tax return the IRS (Internal revenue Service) letter is a significant thing and, in that case, if you receive an IRS tax audit, that’s a scary thing to think about.
What Is a Tax Audit?
A tax audit is when your tax return is examined by the IRS closely and substantiate that both your income and deduction are precise. Basically, your tax return gets selected for audit when something you have mentioned about your return is not common. The main reason behind you are receiving an audit is if they have any doubt that you are earning more than you have reported on your records.
There are four types of tax audits.
1. Correspondence Audit:
Correspondence audit is the most popular tax audit among the others. This type of audit is very simple. In case of Correspondence audit, they send a letter or a notice via mail and request to give more details about particular part of tax return. You need to give your response whether you agree or do not agree with the letter.
2. Office audit:
If the IRS has any larger or complicated question about your tax return, they will send you a letter via mail and they would ask you to meet them in their office. Generally, an office contains more issues and is detailed.
3. Field Audit:
A field audit is the most inclusive audit among the others. In this case they would not only send you a letter via mail but also the IRS revenue agents would come to visit your business place or home directly to examine records.
4. TCMP Audit:
The purpose of the TCMP or Taxpayer Compliance Measurement Program audit is to modify the data for the IRS’ DIF scores. In this case IRS will examine every item and every single part of the return should get demonstrated by certification.
What Will Happen If You Are Not Having Receipt For Taxes?
You might get informed that the IRS statute of limitation was three years from the date you have filed your taxes. But now IRS occupies a series of impunities that has increased the amount of time they have to audit you. For an instance, if you exclude more than 25% of your income, the IRS can charge you even after six years from the date you filed. And if you don’t remember to file certain forms, they can audit you in the future at any time. And in that case, if you don’t have any receipts, you would be in trouble.
What Will Happen If You Get Audited & You Are Not Having Receipts?
If you get audited and don’t have any receipts, you don’t need to be panicked. If you are not having all the receipts, that doesn’t mean you will get punishment. There are so many people who don’t have the records of their finances, but there are several ways to adjudicate an audit.
There are a number of documents that can be used as an evidence to prove your income to IRS audit when you don’t have any receipts:
- Calendar logs of daily tasks/ meetings/ travels.
- Statements of debit cards or credits cards.
- Event’s or individual item’s photographs,
- Checks which are no longer scheduled.
- Records of mileage.
You can also use Cohan rule to your expedience in your audit.
In the year 1930, based on a second circuit decision Cohan rule was invented which is a common law rule. The tax payers can use this law when they are not able to present the records of actual expenditures. This is advantageous for the tax payers.
What Triggers Tax Audits?
The tax payers are anticipated by the IRS. The IRS expect that the tax payers would earn money, they would pay their bills and might be they would be lucky enough to save something and also invest something. But tax audits get triggered if tax deductions are claimed and spent by a person for an important portion for his/her income.
Being Audited By IRS & No Receipts?
If you receive a tax audit, that does not mean that the IRS thinks that you have done something wrong. Sometimes tax returns are haphazardly selected for research purposes. And if you receive a tax audit, as it is mentioned before, you should not be panicked. You can use the other documents as an evidence of your income.
What Will Happen If You Owe Money?
If you owe the IRS money, it implies that you have made a mistake and that’s genuine. It means you not only owe them the unpaid taxes but also have penalties to pay as well as the interest. For an instance, if you are owing $4,000, you might end up owing $5,000.
The IRS Can Confiscate Your Wages:
If you are owing money and you are not having any other ways to return the sum, the IRS can confiscate your wages. You would find that your monthly paycheck has reduced. Also, the IRS can impose your retirement accounts, rental income, life insurance policies, or anything else of value. And you need to take this as warning.
Ways To Keep Your Receipts Safe:
- Physical receipts- There are so many people who keep the receipts physically as it is the simplest way to keep the records. This is not time consuming and no need to give an extra effort for keeping the records into any electronic device. But also, there is a disadvantage of having physical receipts that it might be damaged physically in a flood or fire or it just can be lost.
- Electronic receipts- People who manage their business and transaction via online, they go for electronic receipts which is advantageous for them that makes more sense as it cannot be damaged physically in flood or fire and it remains organized and it just cannot be lost. However, they are still subject to loss from hard drive failure or the damage of the computer. In that case, they can store their receipts in a cloud-based program.
What Will You Have To Do To Avoid An IRS Tax Audit?
If you received an IRS notice and you don’t have a receipt, it’s necessary to have your financial habits back on track and you should be careful about the submission of an accurate tax return every year, and you also need to have all the records of the receipts physically or through a digital medium and that is the only way to avoid an IRS tax audit. And as it is mentioned before you should not avoid the letter sent by IRS, if you are being audited.