The Internal Revenue Service may perform a tax audit on an individual or business for several reasons. The ultimate goal of the tax audit is to bridge the gap between taxes owed and taxes paid. There are several reasons why the IRS may need to procure additional information from a taxpayer, and veteran private equity investor Mark Hauser took some time to outline them for his followers.
Risks That Could Lead to an IRS Audit
While the idea of an IRS audit fills many with stress or anxiety, it is far from an admission of wrongdoing or even the suggestion of one. The IRS may perform an audit at random, though Hauser understands that a few key things might trigger the IRS into action.
- Unusual Donations – If an individual makes unusually high charitable donations incongruent with past income guidelines, the IRS may raise an eyebrow.
- Report Errors – A poorly filled-out tax return may lead to potential errors that the IRS may flag for a possible audit. Potential report errors include incorrectly rounding numbers or misformatting something.
- Business Expenses – Business expenses are part of entrepreneurship, and Mark Hauser understands how vital those expenses are. However, the IRS will look closely at businesses that take out deductions.
- Schedule C Losses – Finally, a business posting too many Schedule C losses will raise a red flag. The IRS may wonder why the company is still in operation and may audit the owner.
Overcoming the Audit With Mark Hauser
Experienced private equity investor and Certified Public Accountant Mark Hauser suggests a few ways to minimize risk while maximizing your potential for coming out of an IRS audit unharmed. Hauser pointed out a few ways he helps his clients succeed when an audit appears at their front door.
- Find Representation – Mark Hauser notes that the IRS typically gives taxpayers up to 30 days to reply to their notice. According to Mark Hauser, find proper representation and respond to the information as soon as possible. While taxpayers may have 30 days to reply, they should do so quickly.
- Prepare Documents – Most tax audits cover the prior two years of an individual’s returns. In certain situations, the IRS may look for even older returns. Mark Hauser believes in keeping documents prepared and organized for access during an audit.
- Decide on an Appeal – At the end of an IRS audit, the taxpayer will have to decide whether or not to appeal the outcome of their audit. An audit may require changes from the taxpayer; in those instances, an appeal is possible.
Overcoming an IRS audit may take a bit of work. Armed with the support of a professional in the financial field, tax audits won’t have to be scars.