Audits are a misunderstood part of filing taxes. Many people do not understand the reasons or consequences of a tax audit.
According to the IRS, audits happen randomly or because of a discrepancy in your filing. You will receive a notification by mail if the IRS selects you for an audit. Continue reading to learn more about the audit process and some common misconceptions.
The IRS only audits the wealthy
The IRS is more likely to audit higher-income individuals. However, they recently increased their low to moderate-income audits. Do not get lazy with your taxes just because you do not make much money.
Too many deductions might trigger an audit
Deductions do not affect your chances of an audit per se. For example, if you have a home office, you should not fear claiming work expenses on your tax report. The only reason you should worry about an audit is if your filing contains unusual details that would stand out to the IRS.
You can throw out documents after one year
Audits typically happen a few years after filing. In some cases, the IRS will look back six years. Keeping your financial records for at least that time is probably a good idea. If you did not receive an audit notification this year, it does not mean you can throw out your documents, because they might come into play years later.
Filing your taxes always comes with the risk of an audit selection. Audits do not mean you did anything wrong, however, preparing for that possibility is advisable. Keep your documents for at least six years, especially if you own a small business or work for yourself.