Red Flags That Could Trigger a Tax Audit | Personal Finance


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“Many audits start with a simple notification letter sent to the taxpayer,” says Stiles. “This may be automatically generated by the tax authorities, for example, when a 1099 was reported by a payer, such as a bank, but the individual doesn’t show any income from the bank on a tax return. Another example is a large transaction reported in a single year, perhaps from the sale of a home or business. The IRS typically identifies the issue and asks for a response.”

As soon as you get the letter, gather your records to make your case. “A good recommendation is to send clear, concise documentation with a simple explanation in response,” says Stiles. In many cases, that may be all you need to do.

Pickering adds that most audits are conducted by mail and resolved by sending supporting documents with an explanation. “If a face-to-face meeting is required, having a tax professional represent them could make some taxpayers feel more comfortable, prepared and knowledgeable about what to expect.”

If you worked with an enrolled agent or CPA, let them know about the audit – they should be able to help and can represent you in front of the IRS. If you filed your tax return through a tax preparer or software service, they may be able to help, too. For example, you can sign up for TurboTax’s audit defense program when you file your taxes for an extra fee.

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