Understanding how far back the IRS can audit your tax returns is crucial for managing your financial records.
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Tax season is that dreaded time of year when you have to buckle down and do tedious paperwork. Accurately reporting every type of income can be overwhelming—everything from wages and business earnings to dividends, gambling winnings, and social security benefits has to be accounted for.
The only thing worse than filing your taxes is finally breathing a sigh of relief only to see that anxiety-inducing letter in the mail—an audit from the IRS.
The chances of getting audited by the IRS may seem relatively low, but it can still happen to you, regardless of your income level. In fact, 0.2% of individual tax returns filed in 2020 were audited—that’s about 1 in 500 tax returns. Getting audited by the IRS is nerve-wracking enough, but what happens if you get audited and don’t have receipts to back up your deductions or expenses?
It’s crucial to know what to do if you’re missing documentation during an audit. When you encounter roadblocks, a trusted tax professional on your side will make all the difference in navigating the audit and protecting your financial future.
What Happens if You Get Audited & Don’t Have a Receipt?
Am I in trouble if I get audited? It’s a common question, especially if you don’t have the receipts the IRS requested. While it can be stressful, it doesn’t necessarily mean you’re in big trouble. Here’s what could happen if you’re being audited and don’t have the receipts the IRS asked for:
- The IRS may deny the deductions you claimed, which could mean you owe more in taxes.
- They could charge you extra in taxes, penalties, and interest if you can’t prove your claims.
- In more serious cases, you could face penalties for negligence or even accusations of tax fraud.
But don’t panic—missing receipts don’t always mean trouble. The IRS often accepts other forms of proof, and with the right strategy, you can still make your case.
Does the IRS Verify Receipts During an Audit?
Yes, the IRS verifies receipts during an audit to ensure the accuracy of the claims on your tax return. They can request documentation to back up deductions or expenses. If you don’t have the original receipts, the IRS may accept alternative documentation.
Alternative Documentation You Can Use
The IRS recognizes that receipts can be lost or misplaced and may accept other forms of evidence to verify your expenses. These alternatives include:
- Bank and credit card statements showing transactions.
- Canceled checks.
- Vendor invoices or replacement receipts.
- Expense reports or business calendars.
- Email confirmations from vendors or service providers.
By gathering this type of documentation, you can demonstrate your expenses even if the original receipts are missing.
Using the Cohan Rule When Receipts Are Gone
If you’re missing receipts, you might be able to use the Cohan Rule, which lets you estimate certain expenses. While this can help save your deductions, there are some limits:
- The IRS will accept reasonable estimates but might reduce the amounts to standard levels.
- The expenses need to make sense for your type of work or business.
Although the Cohan Rule can be helpful, it’s still important to provide as much supporting evidence as you can to strengthen your case.
Don’t Panic! Start Here If You’re Facing an Audit Without Receipts
When you’re facing an audit without receipts, remember—this situation is more common than you might think, and there are ways to handle it. The key is to stay calm, get organized, and take immediate action. You can still navigate the audit process successfully, keeping in mind these 5 simple steps:
- Stay calm—many taxpayers face audits without receipts.
- Gather alternative documentation like bank statements or emails.
- Rebuild records using whatever data you can.
- Prepare explanations for any missing information.
- Hire a professional tax attorney to guide you through the process.
Best Practices to Avoid Future Audit Issues
Keeping things organized now can save you a lot of headaches later. Here are some easy ways to stay on top of your record-keeping:
- Digitize your receipts regularly to ensure they’re easily accessible when needed.
- Use accounting software to keep track of expenses and streamline your records.
- Hold onto your records for at least 3 years (or up to 7 years if you’re reporting losses or complex deductions).
By staying organized and having everything in place, you’ll feel a lot more relaxed come tax time and be ready if an audit ever comes your way.
Take the Guesswork Out of Your IRS Audit
Navigating an IRS audit without receipts is challenging, but ignoring the situation will only make it worse. Hiring a professional tax attorney, CPA, or Enrolled Agent, like those at Lothamer Tax Resolution, will reduce stress and significantly improve your outcome, providing you with:
- Expert Support: Tax professionals know the ins and outs of IRS audits. They’ll help you gather alternative documents, use strategies like the Cohan Rule, and make sure you’re taking the right steps.
- Skilled Negotiation: A professional tax attorney, CPA, or Enrolled Agent will advocate for you, working to reduce penalties, settle issues, and keep your deductions whenever possible.
- Less Stress: Handling an audit on your own can be tough. Tax attorneys handle the back-and-forth with the IRS, so you can focus on other things.
- Peace of Mind: With an experienced team managing your audit, you can trust everything will be done right, lowering the chance of mistakes or missed details.
Don’t wait until it’s too late—reach out to Lothamer Tax Resolution today, and let us guide you through your audit with confidence and expertise.
Choose Lothamer For Expert Tax Solutions in the Midwest & Great Lakes Regions
If you’re facing an IRS audit or struggling with tax debt, Lothamer Tax Resolution is here to set you free. With over 45 years of experience, Lothamer’s team of Enrolled Agents, tax attorneys, and CPAs are dedicated to resolving your tax issues. We help clients across the Midwest and Great Lakes regions, including Michigan, Missouri, Indiana, Illinois, Kentucky, Wisconsin, and Ohio, get back on track with their finances.
Text or call us at 877-955-9020 to schedule a consultation today and take the first step toward financial freedom.
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