Q:

What is the purpose of an audit?

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Quick Answer

An audit is a process that the Internal Revenue Service uses to check that the numbers of an account correspond with the tax return. While the IRS chooses to audit those with suspicious activity on their returns, there are also audits on a random sample of people and companies.

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What is the purpose of an audit?
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Full Answer

There are many different red flags that can start the ball rolling on an audit. These may include obvious errors, failing to include a 1099 form when you have earned extra money, too many reported losses and business expenses, claiming home office deductions, rounding off too many numbers and claiming a large number of charitable donations.

The IRS can and will fine anybody that makes a mistake on a tax return. If the taxpayer is not good with numbers or is worried about making mistakes on a form, he or she should use a computer application or hire an accountant. While giving money to charity can be used as deductions, if there is no proper documentation to show that the contribution is valid, it may come into question. Claiming for supplies that are not directly related to a person's line of work cannot be deducted. Simple and clean numbers, such as $10,000 or $500, look like they have been rounded up and may require proof.

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