Cleaning Up My Financial Disaster

Posted on: 19 November 2015

The thought of a tax audit alone is enough to scare people. However, tax audits are not nearly as bad as they are portrayed. In most cases, they are the result of small mistakes and only require you to fix those small mistakes. If you are afraid of tax audits, check out these five myths and learn the truth.

Myth #1: Audits Are a Big, Scary Ordeal

Unless you've been embezzling money for years, a tax audit isn't a big. On TV, it seems that every audit requires a visit from an IRS agent who goes through all your financial records for the past few years, but that is rarely the case. Typically, you'll receive a letter from the IRS that states something doesn't seem right. Perhaps the IRS has information that you earned $1,000 more than you reported, causing you to owe money. If this is the case, you can either pay the money in full, set up a payment schedule or complete an appeal if you think the information is erroneous.

Myth #2: If You Only Use Cash, You Don't Have to Worry

Many people believe that cash is immune to taxes because there is no trail. However, whether you use credit, checks or cash, there is always a trail. For starters, if you put that money in your bank account and get audited, the IRS will notice. It isn't normal to have thousands in the bank with no clear way of how you got that money. Second, if you claim to only earn $40,000 but have an expensive house, car and boat that are well outside your means, that's another red flag.

Myth #3: Tax Audits Happen Fast

Tax audits are actually rather slow. When the IRS accepts your taxes right after you file, that doesn't mean you're safe. You can even get a refund and still not be out of the water. You may think everything is well and fine and suddenly get a letter regarding your taxes from a few years ago. On the bright side, if you need to repay money, that can usually be done slowly too. Many people get scared and think the IRS will demand the lump sum immediately, but you can usually work out a payment plan. The money you owe, however will have interest and penalties, but you may be able to have them waived.

Myth #4: Certain Deductions Are Audit Red-Flags

It's foolish to avoid taking qualifying deductions just because you're scared of being audited. The IRS doesn't look for specific deductions and then automatically decide to audit. In particular, many people who work at home are afraid of taking advantage of home office deductions. In the past, when working from home was less often, home office deductions may have caused red flags at the IRS, but so many people work from home now.

Myth #5: Taxes Done By Professionals Are Never Audited  

If you have your taxes done by a professional, you can still get audited. Especially around tax season, you see a lot of new tax professionals pop up and a lot of hype about getting you a big fat refund. Many of these tax professionals, however, try too hard because they want more clients. They end up using deductions for which you don't quite qualify. If you do use a professional service, use one that has a long track-record of proven results, and never choose one who promises to get you a big refund.

In most cases, audits are not a big ordeal that you should fear. However, if you disagree with the IRS's decision but are having a hard time winning your case, or if you owe more than you can pay, it is best to contact a tax attorney who can help you sort through the mess. Don't wait. Contact one in your area today by visiting a site like http://www.wflaw.net.