An IRS audit is a review or examination of an organization’s or individual’s accounts to verify that financial information is being reported correctly. During the audit, the IRS will ensure that you are properly reporting your income, expenses, and credits, according to current tax laws. So, what happens after an IRS Audit, even if you’re cleared? Let’s find out.
Notification of Audit Results
After the audit is complete, the IRS will send you a report detailing the findings. This might take a few weeks to several months, depending on the complexity of the audit. If you’re cleared, it means that the IRS has found no discrepancies in your tax returns, and no changes are necessary.
No Action Required
Once cleared, there is generally no action required on your part. You can continue with your financial activities as normal. It’s important to note that being cleared doesn’t guarantee you won’t be audited in the future, so maintaining accurate records is always essential.
Effect on Future Audits
Being cleared of an IRS audit does not automatically exempt you from future audits. The IRS selects returns to audit based on various factors, one of which is random selection. Therefore, even if you’ve been cleared, it’s possible to be chosen for future audits.
Minimizing the Risk of Future Audits
Although there is no surefire way to avoid an audit, there are steps you can take to minimize your risk. These include filing on time, reporting all income, claiming only legitimate deductions, and keeping detailed records.
Keep Detailed Records
One of the key takeaways from an audit—whether cleared or not—is the importance of keeping detailed financial records. Proper record-keeping will not only make any audits go smoother but also provides a solid financial roadmap for your business or personal finance.
- Store receipts for deductions: Receipts prove the validity of your deductions and also determine their exact value.
- Track your income: Whether you’re an employee or a self-employed individual, tracking your income accurately is crucial. This includes all sources of income, including cash payments.
- Record daily expenses: Consistent tracking of your daily expenses can provide a clearer financial picture and also serve as supporting documentation for deductions.
Frequently Asked Questions (FAQs)
How long does an IRS audit last?
The length of an IRS audit can vary greatly, lasting anywhere from a few months to a year or longer. The duration depends on the complexity of the audit, the availability of the taxpayer, and the responsiveness of both parties.
Does an IRS audit affect my credit score?
No, an IRS audit does not directly affect your credit score. However, if the audit results in a tax liability that you fail to pay, the IRS can file a tax lien against you, which can negatively impact your credit score.
Can I be audited even if I don’t owe taxes?
Yes, the IRS can audit you even if you don’t owe any taxes. The audit is not just about finding unpaid taxes, but also to verify that all rules were followed when filing the return.
By understanding what happens after an IRS audit and realizing the benefits of maintaining detailed financial records consistently, you can navigate effectively through the IRS audit process, even if you’re cleared. It’s always beneficial to be well-prepared and organized when it comes to dealing with tax matters.
