Every year, those who earned an income must file a report with the Internal Revenue Service. After submitting, most people forget about their taxes immediately. And that is fine since the IRS reports that it only examined 0.5% of returns in 2018. But that means an audit is just around the corner for nearly one million people.
As long as those one million individuals and businesses were truthful on their returns, they won’t have a problem. The IRS does not necessarily audit because of shady reporting.
What triggers an audit?
The IRS selects citizens for auditing in two ways. Many audits result from computer selection when the IRS compares your filing with a similar benchmark return. If your return’s information is too far away from the benchmark, the computer may choose you for an audit.
You can also receive an audit if your information does not tally with other associated filings. If your claimed income does not match the report of an employer or another taxpayer connected to you, it could signal the need for an audit.
What happens next?
If the IRS selects your return, it will contact you by mail or set up an in-person interview. You will need to produce copies of certain documents. The IRS will tell you what it needs from you, though most items fall into these categories:
- Bills and receipts
- Legal documents
- Loan agreements
- Travel information
- Medical records
- Shareholder information
Arrange these documents by year and type and summarize the transactions. Organization helps speed up the investigation.