No one wants to receive notice that they are being subjected to a tax audit. However, it does happen and Texas individuals and businesses need to be prepared.
This is particularly true with the recent news that the Internal Revenue Service plans to increase the number of audits it conducts. The audits are said to be focusing on high-income people, but everyone should be cognizant of the chance of an audit and know what can be done about them.
Audits will focus on high-earners
According to the IRS, the primary objective is to increase audits on those who earn at least $400,000 per year. People in this income range are the highest 2% earners in the nation. The federal government is trying to catch up on funding shortfalls from a decrease in tax revenue.
It is said that those who are not earning that much do not need to worry about the potential for an audit, but that might not be true. In the past, the IRS has audited people who are categorized as “low” earners as well as high earners.
People who are middle-income earners are not expected to have a higher number of audits than they did in the past. It is expected that out of 500 taxpayers, around one will be audited. Those who earn more are the targets because the IRS is trying to close tax gaps from recent years.
There is concern that small businesses will be targeted. If there are mistakes found, it could be costly for them in penalties and greater scrutiny in the future. Still, many businesses and individuals are filing their taxes according to the law and an audit is simply perceived as looking for minor ways to get them to pay more.
Be prepared for a tax audit
When a tax audit commences, it is imperative for the taxpayer – whether it is a business or an individual – to know what to expect. Often, the audit is done via correspondence instead of face to face. This can leave the taxpayer under the mistaken impression that they do not need advice.
Failure to adequately handle a tax audit can make any problems that come up worse. Knowing the inner workings of the IRS and how to combat tax issues that stem from an audit is key. This is especially vital with the IRS outright saying it is planning to audit more people in the coming years.