What will happen If I get AUDITED?

I made 70,000 (on my 1099) selling insurance in 2010 and an accountant told me that I can write off tons of miles because they expect that from insurance sales people. I also wrote off business expenses that I really did spend but didn't keep receipts for. I really didn't know I had to or that I'd make this much money. If I get audited can I drive my car around and call the places I purchased things at to get some sort of proof or am I going to be in trouble? And what is the worst that could happen to someone in an audit? thanks Yes but what kind of trouble? Like you just end up paying what you should have anyway? or a penalty (how much) or jail? thanks

Written by Burtongrl in United States

Better Answer

On every audit that I have worked on, if the taxpayer claimed mileage the IRS always requested a copy of the mileage log. Always. Not every tax return that claims mileage gets audited, but if mileage is claimed and there is an audit-the mileage will be examined.

Frequently, the taxpayer does not have a mileage log. In this case, you will have to recreate it. Generally, you can do this using your appointment book and "Mapquest." If you can't back up your mileage, the IRS may disallow all of it. They may allow as much as you can prove.

For your other expenses: without receipts, you will need some way to prove them. I've used credit card statements and bank statements to back up expenses of clients undergoing an audit. Receipts are always the best, but credit card and bank statements are generally accepted.

What kind of trouble can you get into for under-representing your income? First, you will have to pay tax on whatever expenses were not allowed. Then there will be the late payment penalty--that will be 5% of the tax due for each month (up to 5 months) that's 25% of your tax bill. Then there will be the interest--that varies depending upon current market rates, but it's accrued monthly. If they find that you've really overclaimed your expenses, you could also be hit with an "underreporting" penalty. I doubt that you'd be hit with criminal tax fraud--that's where you go to jail--the monetary amount just isn't high enough for you yet. (They have a point system, at your income level with only one year at risk, I doubt you'd score enough points for prison.)

Now here's the fun part: if you've been audited and they find that you've misrepresented your income (or expenses) they have the right to go back and audit other tax years. If they find nothing wrong with your tax return during an audit, they may still audit you again for the same thing. If you are audited twice for the same issue, and it is determined that you have done nothing wrong either year, then the IRS cannot audit you again another year for the same issue (for example: mileage.) But, if they succeed in changing your tax return (meaning you lose an audit) they can go back and audit other years. Generally, they cannot go back for more than seven years, but there are exceptions and they can go back further if they feel they have cause.

Now normally I don't say this but, "Fire that accountant and get someone respectable to do your taxes!" You legally can claim mileage and other expenses. And if you do it the right way, you won't lose sleep at night and you won't be on Yahoo worried about getting audited because your taxes will be tight.

Written by Jan

Other Answers

You are not required to have detailed records or proof of your mileage, but it is certainly a good idea. It is permissible to use estimates, but in an audit the IRS is going to want to hear a reliable explanation behind them. The same rule applies to other expenses, but it will be difficult to make your case without receipts or other evidence on paper. The key to a successful audit is preparation. If contacted for an audit, ask SPECIFICALLY what information they want. They are required to give you this information, and once their specific questions are answered, they are not allowed to go any further without specific cause for doing so. If you have the information or evidence to satisfy their initial query, the audit is over. ADDED: If it is determined that you are guilty of an excessive underpayment, and/or your errors are considered negligent, you may incur a penalty. You are only in danger of jail time if you are found guilty of willful tax evasion. If you have been acting in good faith, you have little to worry about.

Written by Rcdrury

If you get audited and don't have valid receipts, you're in trouble. And the IRS has some specific record keeping requirements for mileage claims.

Written by Woof

For mileage, you should keep a log of your trips or it will likely be disallowed. You need receipts for other expenses. If the IRS audits you, they will issue a demand for payment which will include interest and penalties. The only possibility of jail would be if the IRS determined that fraud was being committed.

Written by Mike

You will have to prove that the expenses you claimed were ordinary and necessary business expenses.

Written by Max Hoopla

if you claim miles IRS requires you keep a log book of your mileage
and yes insurance sales people do drive a lot of miles but you need to document the miles you drive
it would be absolutely required if you are audited
I had an outside salesman and we took his cleaning bills as well since he needed to be neat when he was calling on prospects
receipts, receipts, receipts

Written by Tro

Written by Jan

You are not likely to go to jail if this only occurs in one year.Do not use the accountant again.

Records should br kept as you incur expenditures. Thankfully a court case George M. Cohan V Commissioner set up something referred to as the Cohen Rule. Courts and thus the IRS allows reasonable reconstructions during an audit, unless Congress prohibited it in the code.

Get a copy of your credit card statements and bank statements. Write in the margin as much about the expenditure as you can remember. Lunch with Mike Jones to explain coverage resulting in sale of Property and life Insurance.

Use your calendar to track where you drove and whom you met with. Use google or map quest to reconstruct mileage.

If you are audited, take that in and explain what the accountant advised you, the fact that you estimated the expenses and provide then the reconstructions.

I noted that below ne person said they can not go beyond what was originally asked for. That is not true. Auditors are allowed to expand the scope of an audit if they believe there is a problem. They only need to get a supervisors review and approval. Most supervisors will approve expanding the items if there are no records or the records do not match what was on the return. If you cooperate politely they should accept what you have, propose an adjustment if it is far off what you claimed. You will owe interest, but they should waive penalties based on accepting the accountants advice. If the auditor is a total incompetent ask to have the audit considered by their supervisor on a phone conference.

Most managers want the audits completed quickly, so giving what you have to the questions asked and being polite usually helps to wrap it up.

go to www.IRS.Gov, they have posted videos of what to expect during an audit of a business of a self employed person.

Written by Snicky Wicket

If you are audited and don't have acceptable proof for your deductions, they'd be disallowed. You'd have to pay the tax plus interest and penalties. You probably wouldn't go to jail, although it's possible if it's flagrant.

For your mileage, you need a log that you kept through the year showing ALL of your mileage, specifying daily what was business, commuting of personal.

Written by Judy

Insurances