Some people may start to panic and worry when they receive notification that they are going to be audited. But, it does not always have to be this way.
With our guide, we can break it down for you, help you understand what the audit is for, and what happens if you do not have your receipts readily available.
An audit can be incredibly daunting. This is why it is vital that you prepare, keep your receipts and have all the correct information and documentation available, in case you are called up for an audit.
However, accidents do happen, and sometimes, you can leave your important documents in a safe place, and forget where that safe place actually was.
It happens. Luckily, there are other ways that an audit can be completed, and you do not have to worry.
The term audit is usually used to refer to a financial statements audit.
This audit examines and takes a deeper look at the financial statements and records of an individual or an organization to ensure that the transactions and claims are correct and accurate.
There are three types of audits, internal audits, external audits and IRS, or Internal Revenue Audits. External audits will usually be done by certified Public Accounting firms, where a review of a company’s financial statements and internal controls will be done.
On the other hand, an internal audit may serve as a means of making improvements to the protocols and internal controls of a company.
Most audits such as an IRS audit will review and examine an individual’s or an organization’s accounts to see whether financial and legal information is reported and recorded correctly according to tax laws.
It is also to ensure that large companies are not evading taxes, and so a lot of proof, documentation and receipts are required for the auditing process.
If you are having an IRS audit, and you are worried that you do not have receipts, you do not need to panic too much.
All you need to do is find a way to prove your finances, and your income, and you will not incur any penalties or punishments.
An audit will often be organized because the IRS has looked at your tax returns, and deduced that something is incorrect, or not right. This is a rather serious matter, and so you will need to rectify this with proof and the proper documentation.
One of the main reasons that you get audited is if the IRS believes that you are earning more than you are stipulating, in order to dodge paying more taxes, so you will have to prove your income.
Just because you do not have the receipts does not mean that you will be automatically punished. There are other ways that you can prove your income and transactions.
For instance, you can use credit or debit card statements, mileage records, emails, canceled checks, along with photographs of events, items or other evidence.
You can also use a calendar or journal logs of meetings, travelling, day to day activities and tasks to prove your financial status.
You can also use the Cohan rule for business expenses that you cannot find proof of. This is so you can deduct some business expenses that do not have receipts, and the IRS will need to accept your estimates in these cases.
However, you will still be asked to provide other evidence and documentation to support your claims as shown above.
In future, just remember to log, record and save receipts for your financial transactions, statements and records in case this situation arises again.
It is easier to just have the evidence in case you need it, than worry about what you will do if you do get audited.
No, you cannot go to jail for an IRS audit. To go to jail, you would need to be convicted of tax evasion entirely, and the evidence would have to be beyond reasonable doubt.
In order to go to jail for an IRS audit, the IRS would have to find tax evasion in your records, and present their claims to the Justice Department.
The Justice Department would then have to pursue the claim if they feel that you broke the tax law or other codes beyond a reasonable doubt.
Then, you would need to be convicted, and the court must agree whether you are punished with jail time, probation or fines. For the most part, if there is an issue with your taxes, there will normally be a fine.
It depends on how negligent your reporting was, or if you were found to be deliberately altering information in order to get out of paying the correct taxes.