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What to know about tax audits

On Behalf of | Jan 30, 2023 | Tax |

If federal tax authorities believe that you made an error on a recent return, that return may be selected for an audit. An audit is a more thorough review of the information used to calculate income, determine the size of a capital loss or to claim deductions in a given tax year. While state authorities may also initiate an audit, Texas does not levy an income tax.

You’ll receive a notice by mail

The authority that wishes to conduct the tax audit will send a letter detailing the reason for the audit and how it will be conducted. In many cases, audits are conducted by mail as opposed to at an IRS or state tax authority office. However, if the process is too complicated to complete through mail alone, you may be required to submit to a field audit. The notice will let you know how to seek more time to prepare for your next interaction with the IRS and what to do if you have any additional questions.

You may obtain a favorable outcome

Presenting coherent records and answering questions in a thorough manner may enable you to resolve the audit with no change to your return. There is also a chance that the government will discover that you are owed money. However, if you ignore a notice or otherwise fail to take action, the government might seize assets or take other steps to collect what it may be owed.

If you have received a notice from the IRS, it’s important to respond to it immediately even if it’s just to clarify what is happening. Furthermore, it’s generally best to start collecting records and creating a defense to any accusations made by the government the moment one of your returns is selected for an audit.