Got audited recently? When it comes to taxes, one thing everyone fears that this might happen to them. If you’re an independent contractor, the chances of you getting audited on your 1099 taxes are higher. On top of that, the chances of you making mistakes increase as well since self-employed taxes are a bit different and more complicated.
If you ever find yourself faced with an audit, here is what you need to know:
The Chances Of Getting Audited
The odds of getting audited are fairly low. In 2014, the IRS audited .86% of all individual returns. You may be randomly selected for an audit or the IRS may choose to purposely audit your taxes due to suspicious activity.
Generally, you should keep your tax returns for 3 years in case of an audit. However, this might vary according to your circumstances. You need to keep your tax returns for 6 years if you have underreported your income by more than 25%. If you have ever filed a fraudulent tax return or failed to file one, you need to keep your tax returns indefinitely.
1099 tax returns have a higher chance of getting audit. When you do your taxes, be sure to have proper documentation for everything, including 1099s from all employers and receipts for business expenses. This will help you in the event of an audit.
The Auditing Process
If you are selected for an audit, you will receive a letter notifying you. The letter will also state the reason for the audit. Typically, the IRS will request various documents and proof of income, which you can send via mail.
The IRS may also ask you for an in-person interview. This may occur at the IRS office, your home, your office, or at your accountant’s office. Typically, you and the IRS agent will review your documents more in-depth.
How To Properly Prepare
Your notification letter will tell you the reason for your audit. This will help determine what kind of documents you should gather. You will also be asked to submit certain documents as proof so it’s best to make sure you have everything organized.
Getting Legal Advice
For an initial audit, you may not need to get advice from an accountant or seek a lawyer. However, if the IRS finds valid mistakes, it may be beneficial to speak to a CPA. Of course, if the IRS seems to think there is fraud involved, you should speak with a lawyer. If you worked with an accountant to prepare your taxes, they may offer a audit guarantee. While you are still liable for any mistakes, they may be able to help you through the process.
Understanding The Result
Hopefully, after an audit, the IRS will be satisfied with the documentation you provided and leave it at that. However, they may determine that you owe additional taxes. Typically, they will allow you to pay using a credit or through installations, if you have difficulty paying in full. The situation may be different though if it was determined that you committed fraud. To learn more about your options, visit the IRS site.