Smart Solutions For Federal Tax Issues
David Coffin office building

The basics of a tax audit in Texas

On Behalf of | Feb 24, 2023 | Tax |

If you’re a taxpayer in Texas, the prospect of a tax audit may be unsettling. But what exactly is a tax audit, and what can you expect?

What are tax audits?

A tax audit examines your tax returns and financial records to verify that the information reported is accurate and complies with tax laws. The IRS or state taxing authority may conduct an audit if there are concerns about errors, inconsistencies, or possible fraud.

Types of tax audits

Tax audits come in different forms, including correspondence, office, and field audits. A correspondence audit is the least invasive, where the taxing authority requests additional information by mail. Office and field audits involve more detailed reviews and are conducted personally by tax agents.

What triggers tax audits?

Several factors can trigger a tax audit, such as mathematical errors or discrepancies in your tax return. A significant increase or decrease in income, failing to report all taxable income and claiming too many deductions or credits may also raise red flags. Additionally, being self-employed or claiming losses for a hobby or rental property could make you more likely to be audited.

What happens during a tax audit?

During a tax audit, the tax authority will request documentation to support the items on your tax return. This may include receipts, invoices, bank statements and other financial records. In addition, the auditor may ask questions about your tax return or financial situation, and you may need to provide additional information or clarification.

What are the possible outcomes of a tax audit?

After the tax audit, the auditor will report their findings. If the auditor finds no issues, the audit will be closed without changing your tax return. However, you may need to pay additional taxes, interest and penalties. Sometimes, you may need further action, such as appealing the audit or entering a payment plan with the taxing authority.

Latest information about audits

Recent changes include more use of data analytics by the IRS. It’s also worth noting that taxpayers have rights during tax audits, such as the right to appeal an audit decision or the right to representation.