Taxes

What Does It Mean to Be Audited?

Feb 05, 2021 • 3 min read
Wooden IRS Audit stamp on documents
Table of Contents

      Each year, individuals and corporations pay taxes to the Internal Revenue Service (IRS). On occasion, the IRS may decide to audit an account. While many people think this process is lengthy and confusing, it can be quite simple in some cases. Keep reading to better understand what it means to be audited and why it happens. 

      How Does the IRS Choose Who to Audit?

      There are 2 ways your personal or business taxes could get selected for an audit: random screenings or related examinations. 

      With random screenings, the IRS chooses a handful of accounts each year to review for accuracy. The organization will review your taxes to make sure the forms are filled out correctly and align with a set of “norms” associated with your expected income and expenses. If you make any math errors or forget to submit a few forms, the IRS may contact you regarding your audit.  

      Related examinations occur when the IRS looks at your accounts because of a review of another audit. For example, if a business is audited, the IRS might also look at the investors involved. If you have an issue with another taxpayer, the IRS might audit both of your taxes

      What Are Your Chances of Getting Audited?

      Millions of Americans pay taxes each year, and there is no way for IRS employees to audit each account. Even if the IRS chooses a large sample size of accounts to audit, it is highly unlikely that you will be selected. 

      How Will You Be Notified About the Audit?

      The IRS lets people know that their accounts are being audited through the mail. The organization will never contact you by phone, email, or text to alert you of an audit. 

      What Do You Need for an Audit?

      The IRS will provide clear guidelines for what you need to provide going into an audit. For example, you may need to pull records of your pay stubs to prove that your income levels are correct. You may need to provide information about your health insurance or investments to clarify that they align with what you reported. 

      In some cases, the IRS only needs 1 or 2 documents to approve your account through an audit. 

      How Is an Audit Conducted?

      The IRS audit can be handled either through the mail (by requesting specific documents) or in person. You may be requested to attend an in-person interview at the IRS offices or receive a visit from the IRS auditor to review your assets first-hand. 

      The IRS will be clear about how you are audited so you can easily follow the request. 

      One of the best ways to ensure a smooth audit is to keep clear and organized books—you can share your expenses and profits with the auditor to prove that your documents are correct. Consider using a free tool like Lendio’s software, which makes it easy to track invoices and manage expenses for easy tax filing.

      Where’s all your money going? With Lendio expense tracking, it’s easy to account for every penny.

      About the author
      Derek Miller

      Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.

      Share Article:

      Business insights right to your inbox

      Subscribe to our weekly newsletter for industry news and business strategies and tips

      Subscribe to the newsletter

      Subscribe to our weekly newsletter for industry news and business strategies and tips.