The Truth About IRS Agents and Getting Audited
Nov 15, 2024When it comes to audits by the IRS, many emotions and misconceptions arise. Simply mentioning an IRS audit evokes fear, stress, and images of jail time for most people. In a recent episode of Keep What You Earn, Shannon aimed to demystify the process of getting audited and shed light on what it’s actually like to interact with IRS agents.
Shannon begins by addressing the most visceral reaction—fear of going to jail. Many entrepreneurs mistakenly think that an audit signifies severe trouble, potentially leading to incarceration. However, Shannon clarifies that jail is rarely on the table unless you're involved in serious, willful tax evasion or fraud.
Shannon uses a compelling analogy to describe the experience of getting audited. She compares it to getting pulled over by a police officer while driving. At times, you might get pulled over for something minor, like a missing inspection sticker, even if you aren't speeding. Similarly, an IRS audit doesn’t necessarily mean you did something wrong or intentionally broke the law. IRS audits often arise from small discrepancies or random selection. Shannon points out that the IRS is more concerned with significant underreporting or over-deduction, akin to speeding well over the limit. Small errors or gray area deductions are less likely to draw severe penalties. Just as police typically won’t pull you over for going four miles over the speed limit, the IRS is unlikely to come down hard on minor mistakes.
When you're audited, think of it as being asked for your license and registration during a traffic stop. IRS agents will request documentation to substantiate your claims on your tax return. This could include receipts for expenses or proof of income. Shannon emphasizes the importance of good bookkeeping. Lack of proper documentation is like driving without your license and registration; it can escalate a minor situation into a more serious issue. Proper and organized bookkeeping can make an audit relatively pain-free.
Contrary to the villainous image many people have of IRS agents, Shannon describes them as professionals simply doing their job. Like police officers who enforce traffic laws, IRS agents enforce tax laws. They have a duty to ensure compliance, not to make your life difficult. Shannon also dispels the myth surrounding the so-called 80,000 new IRS agents hired to "hunt down" taxpayers. The budget provided was intended not just for hiring new agents but also for upgrading technology and improving service, such as answering phones more efficiently. The new hires include not only auditors but also customer service representatives, which ultimately benefits taxpayers by improving response times and service quality.
Shannon's advice for handling an audit smoothly hinges on two things: documentation and demeanor. Having accurate and accessible records is paramount. Beyond that, she encourages a cooperative and respectful approach when dealing with IRS agents. Just like with a traffic stop, a polite and compliant attitude can make the process less stressful. Most audits result in either no change or minor adjustments. According to Shannon, a vast majority of audits are straightforward and nothing to fear. If any discrepancies are found, they can usually be corrected easily, allowing you to move on with minimal hassle.
Shannon's discussion on Keep What You Earn offers much-needed clarity on the frightening topic of IRS audits. By likening the audit process to a routine traffic stop, Shannon effectively diminishes the aura of dread that surrounds it. With good bookkeeping practices and a cooperative attitude, an audit can be a manageable event. Far from being adversaries, IRS agents are professionals committed to ensuring everyone pays their fair share, without causing undue alarm or inconvenience. Facing an IRS audit is undoubtedly inconvenient, but it doesn't have to be the traumatic ordeal many imagine. Shannon’s insights reveal a more balanced perspective that can help entrepreneurs approach audits with composure and preparedness.
For more insightful discussions like this, be sure to tune into Keep What You Earn and empower yourself with knowledge to navigate your business finances confidently.
What you'll hear in this episode:
06:03 IRS audit requires detailed financial documentation.
08:07 Leave show review; okay back to findings.
12:28 IRS staff increases improved service quality.
16:08 Comprehensive resources bundle for new business owners.
If you like this episode, check out:
The Truth About Tax Savings and Strategies
Is Hiring A Tax Strategist For You?
Simple S Corp Salary Guide for Beginners
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
