Tax Advice

Did you make a simple mistake on last year’s tax return only to find yourself in hot water with Uncle Sam? Unless you’ve consciously attempted to defraud the federal government, you can relax—at least, partially. Your chances of suffering legal consequences for committing an honest error are next to nil. 

However, when it comes to financial consequences, you’re still not in the clear. The IRS views careless mistakes as negligence, which can result in expensive fines. We’re talking about an additional 20% of the under-reported amount, to be specific.

To minimize your risk of making costly errors during the audit process, you need to enlist the guidance of a certified public accountant. With a licensed tax professional in your corner, you’ll be able to navigate the audit process seamlessly—substantiating your claims with evidentiary support and advocating for your rights. 

In any audit, half the battle is understanding how to make the tax code work for you. Accordingly, CPAs are masters of harnessing the data to their client’s advantage. But, before we discuss how to ensure a no-sweat tax audit, let’s take a closer peek into the audit process itself.

What are the Odds?!?!

Nothing strikes more terror into the hearts of tax-paying citizens everywhere than a nondescript envelope postmarked from the IRS. Fortunately for most taxpayers, IRS tax audits are relatively rare. 

In 2019, for instance, the IRS selected only 0.4% of all individual tax returns to undergo further inspection. Furthermore, most of these tax returns pinged the IRS’s built-in error-detection meter—a sophisticated algorithm that compares individual tax returns to expected results. (But, more on how that works later.) 

Unfortunately, however, there’s some bad news embedded in all that good news. Although your risk of being audited is rare—especially if you play carefully by the IRS’s rulebook—it’s impossible to dodge a tax audit altogether. That’s because the IRS selects a predetermined portion of all tax returns to investigate entirely at random. So, although honesty is indisputably the best policy, some honest taxpayers will still find themselves among the unlucky few—to be quite candid.  

Simple Mistakes That Trigger IRS Tax Audits

Remember that sophisticated algorithm that we discussed previously? It serves as a filter, separating suspicious transactions and mismatched calculations from predictable behaviors. 

Because your employer and various institutions reported your annual income, the IRS knows roughly how much money you pocketed last year. It then compares that value to the amount you reported, as well as the deductions and credits you claimed. For each income level, the dollar amount of deductions that taxpayers claim follows a bell curve distribution. Any deduction value several deviations above the mean throws up an automatic red flag. 

Although misrepresenting your finances to the IRS is a big no-no, the following accidental behaviors can also trigger an audit:

• You under-reported your income: Believe it or not, under-reporting your income is a simple mistake to make. Although it’s easy to remember to report the revenue from your W2, it’s a lot easier to forget that stack of 1099’s you received along with that Form W-2G from a lucky night at the casino.

• You made a math error: You may think using a computer to file your taxes means automatically avoiding this sort of error—but think again. Automated tax preparation services are only as good as the humans inputting the data. A careless keystroke can mean adding an extra zero to a column you never intended to misreport. 

• Using rounded numbers didn’t work out in your favor: The IRS expects us to calculate our deductions down to the penny. So if you attempted to “guestimate” your expenses by rounding up or down to the nearest dollar value, the system might label your return as inaccurate. 

• You claimed too many (or the wrong) tax deductions and credits: The IRS has strict guidelines about the tax deductions and credits that individual filers can claim. For example, tax filers can claim either the Lifetime Learning Credit OR the American Opportunity Tax Credit in a given tax year—but never both at the same time. This bylaw may be confusing to some as both credits aim to help taxpayers defray the costs related to educational expenses. However, unless you’re a certified tax expert, you might not realize the either/or nature of these credits and double-dip on your deductions.

The Long, Arduous Audit Process in a Nutshell 

If you’re selected to undergo an audit, the IRS will typically initiate audit proceedings within a year of accepting your return. However, bear in mind that the IRS can examine up to six years of your financial data. This unsettling reality underscores why the federal government (and your CPA) often recommends holding on to any important receipts for up to three years. 

Furthermore, the type of audit you’ll undergo can take three forms:

• Correspondence Audit: By far and away, the most common type of investigation, correspondence audits, occur via mail. During a correspondence audit, the IRS will ask you to respond in writing and furnish proof by providing receipts, affidavits, and documents to support your financial activities. 
• Desk Audit: During a desk audit, you meet face-to-face with an IRS agent in an office setting for an official interview, lasting from one to five hours in duration. 

• Field Audit: During a field audit, an IRS agent visits your place of business to conduct an official interview and review financial records on-site. 

Think you can knock out an IRS audit in an afternoon? Think again. 

The typical audit process takes an entire year to conduct, translating to multiple correspondences with the IRS, repeat in-person interviews, and numerous deep dives to procure adequate documentation of your financial activities. 

Sound intimidating enough? It doesn’t have to be. Once your initial panic subsides, contact Steven Lissner & Company to request audit representation and secure a no-sweat, minimum hassle audit. 

Why You Need to Secure Audit Representation Pronto

If you’ve been audited by the IRS, drop everything and enlist the expert guidance of a certified public accountant. Similar to lawyers, CPAs can serve as your proxy. During audit proceedings, for example, your CPA functions as your official representative—meaning, you may not even be required to attend.  

Being able to sit back and relax while your CPA performs all the heavy lifting is ideal for a number of obvious reasons. Consider, for example, the following analogy: 

When you were younger, did you ever receive a speeding ticket? Instead of throwing yourself at the mercy of the court system, your friends and family probably advised you to hire a lawyer. The rationale for doing so subsequently become rather apparent: 

1. Your lawyer knew precisely how to finesse the law to your advantage and had developed career-long professional relationships with the very individuals handling your case. 
2. Hiring a lawyer demonstrated to the court that you took your case seriously and resulted in a lower penalty for the charge. For example, if you were speeding 20 mph over the speed limit, perhaps your lawyer was able to reduce your clocked speed by 10 mph, a significantly lesser offense. In addition, the reduced charges meant fewer points on your license as well as hundreds of dollars in savings on your annual insurance premiums.

Similarly, hiring a CPA to navigate your audit proceedings ensures that you furnish the detailed documentation that your IRS agent needs to resolve your case. Instead of fumbling around with the system, you rely on a tax professional who knows the tax code inside and out. Tax documents, checkbook registers, receipts, and more—your CPA knows how to help you build an air-tight case to support your financial activities and minimize your risk of paying hefty fines.  

Steven Lissner & Company: Audit Protection You Can Count On

Steven Lissner & Company has earned over 30 years of industry-leading experience in delivering no-sweat audit representation. As a result, our clients feel empowered knowing that, if audited, our CPAs will work tirelessly to ensure a seamless audit process, free of headaches and hefty fines. 

In addition, our CPAs interact directly with the IRS on your behalf to eliminate all the back-and-forth, tax jargon, and piles of paperwork. With a tax expert in your corner, you’ll be able to furnish the evidentiary support you need to justify your finances exactly when you need it the most. 

Furthermore, our tax experts will work to tidy up your finances beyond the immediate audit process. Enlist the guidance of our CPAs throughout the year and discover how you can save thousands of dollars on your end-of-year taxes, retirement savings, investments, and more. Or utilize our services to identify workable solutions to level up your small business. 

You’ll be shocked at all the ways (big and small) that you can save thousands by consulting the expert wisdom of a financial advisor. Contact our office today to schedule a consultation to learn more about how our tax specialists can help you. 

Remember, the best defense against an audit is an excellent offense. Avoid making costly mistakes on your taxes that can lead to future audits and secure your most significant refund to date!