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Why tax audits shouldn't be scary

The words "tax audit" put some people into a panic state. If you are an honest person and have nothing to hide, what is so scary? You might be thinking, "What if they find something I missed, or forgot, or did incorrectly?"

Believe it or not, most tax audits are not nearly as bad as most people think. To begin with, not very many tax returns are selected for an audit -- less than 1 percent. Second, there are three different kinds of audits: a mail audit, office audit and field audit.

In a mail audit, the Internal Revenue Service sends a letter questioning a specific issue with your return. Usually it is a request for documentation of proof for something you claimed as a deduction. You may never have to deal with anyone in person, but just send the required documentation.

In an office audit, you may be required to go into an IRS office to discuss certain things on your return. Usually, you only have to show up in person because the questions are too complex to play mail tag. You will be instructed what you need to bring with you.

In a field audit, an auditor will come to your home or office and go over your entire tax return. If you have your paperwork in order, the audit can often be quick and painless. This is why you should retain your tax documents for several years.

If you have incorrectly-filed taxes, many times you are just asked to revise the return and pay up if it is determined you underpaid. However, you are also free to file an appeal if you disagree with the audit. This usually requires a tax audit attorney, or at the very least an enrolled agent for your audit defense.

What you should never do is procrastinate or ignore IRS correspondence. If the IRS finds that you owe additional money, interest will be charged on any past due amounts. It benefits you to get the audit over with to prevent interest from accruing on money owed.

Source: The Motley Fool, "Your Tax Audit Playbook: What to Expect If It Happens To You," Matthew Frankel, accessed Nov. 23, 2017

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