An audit is an official assessment of a person or accounts of an organization. ‘IRS Audit’, only listening to these words can scare even the most honest taxpayer, even if they have done their best to get their taxes in order. IRS is auditing doctors, and it looks like physicians are not comfortable with it due to their poor record-keeping practices and their higher earning probability. Below are some top IRS audit triggers.
Top IRS Tax Audit Reasons
- Discriminant information function or DIF computer system.
- If you earn $ 200,000 or more
- If you overlook the income; the IRS receives copies of W2s and 1099s forms
- If you spend or deposit a lot of cash
- If you demand many deductions; Example claiming 50% or more of your income as a donation to qualified charities.
- If you withdraw from 401(K) or IRA and are not retiring age
- If you are self-employed; self-employed persons are entitled to Tax deductions that most other taxpayers cannot share (Travel/car, home office, etc.)
- If you own a cash medical practice.
- If you have assets or cash in another country
When faced with an audit, the best approach is to understand the process, why your return has been reviewed, what your rights and obligations are, and how you can challenge the results.
An Audit Is Not a Charge of Misconduct
If you are being audited, it does not mean that you are being charged with any crime. The IRS review will only conduct an impartial review of your tax return to determine its correctness. You are expected to prove that you have reported all your income and were entitled to all credits, deductions, and exclusions shown on your return.
There Are Three Types of Audits
- A correspondence audit can occur if some mistake occurs and send relevant information to the IRS.
- For a book review, you are usually asked to submit your tax records to an IRS office for review. If you make a large deduction in one area, the IRS may request the appropriate evidence to document these deductions.
- In a field test, the examiner visits your home or business to check documents or other evidence that confirms the accuracy of your tax return.
Here are a few tips to survive IRS tax audit
- Maintain Good Records
Doctors should make sure that they have adequate security for each deduction asserted. One questioned physician gave this excellent advice: “Keep careful records, records of all deductions, credit card statements, vehicle records, travel and education routes, food receipts, and everything else.
- Be Organized and Ready
You need to plan properly in advance when making deductions. Learn what to deduct and keep first-rate records. Keeping meticulous records would be wise. Be ready to support all prints with external sources such as letters, documents, and precedents.
- Certain Returns Pose a Higher Audit Risk
If you are self-employed, receive a large part of your income in the form of tips, or engage in a cash-intensive business, it is also more likely that you will be audited. Taking more than the average amount of deduction in some areas can also increase the audit risk. This includes medical and dental expenses, taxes, donations, and other expenses.
- Use Professional Help
Retaining an external tax specialist may provide sufficient basis for extending the deadline as the consultant must be trained on these issues. This strategy allows the physician to transfer a tedious on-site audit from the office to the consultant’s office. The use of a counselor may prevent the physician from voluntarily providing unsolicited information or offering information that may prove harmful to the case.
- Reconstruct Data Records
In many cases, certified physicians receive requests for records that they do not have. Many will just throw in the towel and pay unnecessary taxes. Reconstruction of records is generally permitted, especially if such records have been destroyed by fire, lost through theft, or are unavailable for a valid reason.
- Know Your Rights
While being audited you have rights to:
- Ask for an explanation of audit procedure
- Representation by a lawyer, a CPA or a registered representative.
- Ask for additional deductions that you did not originally claim in your tax return.
- Request an opinion from the National Bureau of the IRS on specific technical issues that arise during the audit.
- Pay attention to these more precautions
- If you need time to organize your paperwork, request to postpone.
- If you have one, meet with a trusted representative prior to your first interview with the IRS agent to discuss strategies and expected outcomes.
- For the audit, only bring along the documents that are requested in the IRS message.
- Arrive well prepared. If your paperbacks up the items that are the subject of your return, the agent does not waste time conducting a more in-depth review.
- Be professional and polite (and expect the same treatment in return).
- Do not pass on any voluntary information to the IRS Agent. If you have a representative, he should respond to the questions.
- Keep detailed records of all the materials you send to the agent and any questions the agent asks.
- Ask the supervisor’s supervisor to speak to him if you think the agent is treating you unfairly.
- The auditor will send you a test report. If you disagree, call the examiner with your questions or concerns.
As a final point if you disagree with the expanse offered for adjustment, ask the auditor to review the data supporting your claims and give reasons for all the conclusions. Physicians and their representatives may request a meeting with the supervisor’s superior. Since this involves an additional delay, it can possibly make a quick compromise