Navigating an IRS Audit After Using TurboTax: What You Need to Know

Using TurboTax to file your taxes can be a convenient and efficient process, but it's important to understand the limitations and potential issues that could arise, particularly during an IRS audit. This article provides a comprehensive guide to what to expect and how to handle different scenarios.

Understanding TurboTax's Functionality

TurboTax is designed to simplify the tax-filing process by automating many of the steps involved. However, it relies on the accuracy of the information you provide. TurboTax checks for consistency and basic errors in your data but does not verify the truthfulness of your claims. This means that if you input incorrect or incomplete information, you may face issues during an IRS audit.

TurboTax's Limitations

Despite its advanced features, TurboTax cannot detect all instances of fraud. For example, TurboTax will not prevent you from:

Reporting significantly different income levels on different forms (e.g., reporting 100,000 in one place and 10,000 in another). Omitting sources of income completely. Submitting incorrect deductions due to simple math mistakes.

It is ultimately the responsibility of the taxpayer to ensure the accuracy and completeness of the information provided to TurboTax.

What Happens During an IRS Audit?

An IRS audit may be triggered if the IRS believes there is a discrepancy in your tax return. If you have a complete and accurate tax return, timely paid the required taxes, and ensured that all information was correctly entered into TurboTax, you should be in a good position. However, several factors can influence the outcome of an audit:

Positive Scenarios

In many cases, if you have started with a tax return that was accurately filed in TurboTax, and any discrepancies are resolved with enough supporting documentation, there is a good chance the audit will be concluded satisfactorily. TurboTax even offers an additional service called Audit Defense, which provides support for those who are at higher risk of IRS examination.

Negative Scenarios and Proactive Measures

There are several scenarios where an IRS audit can become more challenging. If your information is incomplete or there are suspicious discrepancies:

You may need to engage an enrolled agent or a tax lawyer to represent you during the audit process. Engaging a professional can significantly impact the outcome, as they can handle all communications with the IRS. If you choose not to engage any professional and handle the audit yourself, you will need to attend meetings with the IRS examiner in their office, at your home or office, or over the phone. This process can be time-consuming and stressful. While handling the audit on your own can be more financially viable, it also means you will be responsible for producing all necessary documentation and responding to requests for information.

Preparing for an IRS Audit

To prepare for a possible IRS audit, consider the following steps:

Stay organized and keep detailed records of all financial transactions, including receipts, bank statements, and any other supporting documents. This will make it easier to provide evidence during the audit process. Be ready to explain any discrepancies or complicated financial situations. Have clear documentation and a logical sequence of events ready. Engage TurboTax's Audit Defense service if you feel it is necessary based on your circumstances. Keep in mind that engaging a tax professional can provide a buffer, as they handle all communications with the IRS and can navigate the complex process more effectively.

Conclusion

While TurboTax can simplify the tax-filing process, it is essential to be aware of its limitations and the potential risks of an IRS audit. By understanding the steps you can take to ensure accurate and complete filings, you can minimize the chances of issues arising and navigate any audits more effectively.