Are you anxious about being audited? As NY1 continues its tax series, we'll tell you why the process may not be as bad as you think. NY1's Tara Lynn Wagner filed the following report.
I'm about to say one of most dreaded words in the English language. Ready? Here it comes...audit.
The first thing you need to know is that more often than not, the IRS will contact you through the mail.
"The worst day is when you go to your mailbox and find a letter from the IRS," says Elizabeth Maresca, a professor at the Fordham University School of Law.
While your impulse may be to hide the letter, or yourself, Maresca says that the worst thing you can do is ignore it.
"Open the letter. Look inside. Generally, you'll have about 30 days to respond," she says. "Often, they're asking you about something very simple, and you can respond to that on your own. Some people just make mistakes by accident. They forget interest income from a bank account, and the letter might be about that."
That's called a correspondence audit, since it's done entirely by mail, and really, that's how a bulk of audits are handled.
The other possibility is that you are called for an in-person audit.
"You have to come in and sit with a tax auditor," says Peggy Riley, an IRS spokesperson. "And you know, it's not always 'Bring all your records and books, all those shoeboxes full of paperwork.' It can just be questioning, you know, one or two items on a return."
Of course, there are cases where the IRS is going to want to go through your return line by line, but those are less common. In those cases, that shoebox will be your best defense since you'll need to back up any deductions or credits you may have claimed.
"So if you're claiming charitable contributions, hold on to those receipts that prove that you made those donations. If you have home mortgage interest deduction, hang on to that form that you received from the mortgage company," Riley says. "Just keep everything together with a copy of your tax return, and as long as you can come in and show us why you took what you took, then it may be not changed at all."
Also remember, even if you hired a paid preparer, when you sign the return, you're swearing under penalties of perjury that everything on there is legit. If mistakes are found and there's money owed, it's going to be you that has to pay it.
The bottom line is, audits happen, but if you follow the rules and keep good records, there's no need to be terrified. Right, professor?
"No matter what I say, everyone's going to be terrified when they see that letter," Maresca says.
Well, we tried.