Tax and its significance:
To understand the term tax audit we should have knowledge about tax itself. Tax is a certain amount charged on the people by the state or government of the region. This amount is used by the state to work for the betterment of the people and country as a whole. Tax is an amount that needs to be paid by every individual of the particular state or country. It is obligatory not voluntarily and any individual who fails to comply will be punishable by the law. There are many types of taxes that are paid by the individual every year and by the help of these taxes the government provides many facilities to their people. However, some people try to avoid paying the taxes by hiding their total income. To accommodate this problem the state has introduced the law of the tax audit. Tax audit is the inspection of the tax return of an individual or business by the tax audit companies or authorities.
Tax Audit:
Tax audit is the examination of the tax return of an individual or business by the tax authorities. These audits are conducted by the tax authorities to ensure that the information provided by the individual or business official is correct and in accordance with the tax laws. There are three different types of tax audits that are conducted by the tax authorities or the IRS departments, like the field audit, correspondence audit and the office. The field audits are conducted at the house or business area of the individual. These audits are mostly conducted on large business corporation, but sometime few individuals are also selected for such audits. The office audit is performed in the premises of the tax authorities’ office. These audits require the individual to visit the office of tax authorities along with some specific documents. Moreover, the correspondence audits are conducted through the mail of the individual and are the most common type of tax audits.
How the tax audits are done:
People who are selected for tax audit often get scared by the process, but it is not so complicated or scaring if the tax returns reported to the authorities are right. Tax audit process starts with a random selection of the individual or businesses. The IRS or tax authorities often use different computer software to analyze the tax returns of people. After, the analysis is done and the individual or business is selected for tax audit then the IRS or tax authorities will select the specific method of the tax audit. There are three methods of tax audits that can be used by the authorities, and each method has its own requirements and processes. If the authorities find any problem with the tax returns of the individuals or businesses, then they would suggest some changes in the tax liabilities. Subsequently these proposed changes need to be approved or disapproved by the individuals or businesses.
How to avoid the tax audits:
Though tax audit is not a negative proves to go through, but still they should be avoided by following some simple rules. Any individual or business can avoid the tax audit if they keep a proper record of their earnings and paid taxes. Moreover, such audits can also be avoided by presenting a clear financial picture to the tax authorities.
