What you need to know about tax audits

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It's tax season, and one thing that might be on your mind is an audit. What are audits and how might one affect you? Does an audit mean the Internal Revenue Service (IRS) thinks you did something wrong?

The reality is that tax audits are fairly common. If you're selected, you need to cooperate. However, you do need to minimize the effect the audit may have on you by taking steps to limit the audit to the items that the IRS requested to review.

Most people assume audits are bad because of the risk of the IRS charging them more than they previously paid in taxes, along with fines and penalties. However, audits, surprisingly, aren't all bad. Sometimes, people make mistakes that actually help them during audits. That means they may end up getting tax relief, a refund or other benefits out of the audit. But don't count on it!

What should you do if you're audited?

First, protect yourself from making mistakes by consulting a legal professional who is proficient with tax law matters. This person will help you before and during the audit so that you know what you should or should not say to the auditor. Remember that the auditor has a job to do. If he or she asks you a question, stick to the point and only answer the question asked. Don't offer any additional information that wasn't asked. 

If you're audited and have records that have been kept in order, it's easier for the audit to move along quickly. By maintaining good records and information, it's easier to provide everything that goes with the tax years being audited so you don't have to worry about missing receipts or other information that could help you.

Finally, make sure you have the information for the year requested. If you didn't keep your tax information, get as much information about that year as possible ahead of time. Call your medical providers, check your banking history and look for other sources to find your receipts and documents that may be necessary for the tax audit.

Don't panic

If you're worried about getting audited, the likelihood is fairly low. If you are audited and the auditor discovers mistakes, learn about your options before deciding what to do. If your mistakes were honest ones, there's no reason that you should be worried about criminal action being taken against you.

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