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As a taxpayer, knowing the IRS audit time limits is essential to avoid any surprises. Familiarizing yourself with these time limits and diligently maintaining good record-keeping practices will protect you from unforeseen complications during an audit process. In this episode, Ralph Estep Jr. discussed strategies for minimizing the risk of IRS audits and answers the question - how many years can the IRS audit my returns?
In this episode of the "Ask Ralph" podcast, your host, Ralph Estep Jr., dives into the nitty-gritty of IRS time limits, revealing that while the standard audit window is three years, there are exceptions that could extend this period. Additionally, Ralph offers advice on how to face potential scrutiny in IRS audits with confidence. Join Ralph as he unravels the mysteries of IRS audits, offering insights that could save you from unnecessary worry and financial headaches.
00:00 Episode Overview
00:42 Show Announcements
01:25 Bible Verse
01:58 Understand Irs Audit Time Limits
02:49 Exception 1: Substantial Understatement Of Income
03:31 Exception 2: Fraud Or Intentional Misrepresentation
04:05 Exception 3: Unfiled Tax Return
04:52 Minimize Your Audit Risk
05:23 Step 1: File On Time Every Time
05:59 Step 2: Double Check Your Work
06:42 Step 3: Keep a Meticulous Record
07:03 Step 4: Don't Be Afraid To Seek Professional Help
07:48 Episode Recap
08:21 Outro
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Ralph Estep Jr.:
Welcome back to the Ask Ralph Show, where we tackle your financial questions from a place of faith. I'm your host, Ralph, and I'm thrilled you're tuning in today. You know, sometimes I wake up in the middle of the night, heart pounding, thinking about taxes. Anyone else? Or just me? Okay, well, even if you don't share my intense relationship with the IRS, today's topic is one that can bring you peace of mind for every taxpayer.
Ralph Estep Jr.:
We're diving deep into a question I get asked all the time. And that's this question: "Hey, Ralph, just how far back can the IRS go in auditing returns?" Well, stick around because knowing the answer could save you from a whole lot of unnecessary worry.
Ralph Estep Jr.:
Before we get into the nitty-gritty of IRS time limits, let's take a quick look and stroll down memory lane. Yesterday, we explored some fantastic alternatives to personal loans, talked about everything from credit unions to peer-to-peer lending, all with the goal of helping you find the most financially responsible path forward.
Ralph Estep Jr.:
If you missed it, don't sweat it. Just scroll back one episode and give it a listen. And make sure you hit that subscribe button so you don't miss a single episode. Tomorrow, we're diving into a topic that can be tricky both financially and emotionally. And that's what to do when you inherit property with someone else. Believe me, I've been through this. You want to be prepared for that conversation.
Ralph Estep Jr.:
Now, friends, before we get down to business, let's take a moment to center ourselves in Scripture. Today's verse comes from the book of Proverbs 11:1 and reads: "The Lord detests dishonest scales, but accurate weights find His favor." This verse reminds us that honesty and integrity are paramount, especially when it comes to our finances. God sees everything, and it calls us to be above reproach in our dealings, and that includes, that's right, you guessed it, our taxes.
Ralph Estep Jr.:
All right, well, let's talk taxes. Specifically, let's talk about the IRS and those dreaded audits. I know the word "audit" sends shivers down many spines, but understanding how long the IRS has to audit your return can actually be quite empowering. As I always say, knowledge is power.
Ralph Estep Jr.:
Here's the general rule of thumb. The IRS typically has three years from the date you filed your tax return to initiate an audit. So if you filed your 2023 taxes on April 15th, 2024, the IRS generally has until April 15, 2027 to come knocking at the door. Trust me, that's a visitor you don't want to see at your door. "Three years? That's it?" You might be thinking. Well, yes and no. There are some important exceptions to this rule. It's always those exceptions to get you. My grandfather told me that. So let's talk about those exceptions. Now, the first exception is this, and that's called "Substantial Understatement of Income."
Ralph Estep Jr.:
And you ask, "Ralph, what does that even mean?" If the IRS suspects you significantly underreported your income - we're talking about 25% or more - they expand that to 6 years to audit your return. This is where meticulous record-keeping becomes your best friend. Keep those receipts. If you learn nothing else from today's show, make sure you keep all your records and make sure they're organized and safe at the very moment you file return.
Ralph Estep Jr.:
Most people don't know this, but technically, you're supposed to have all your receipt, evidence ready and assembled before you file your return. Let's look at exception number two. And that's "Fraud or Intentional Misrepresentation." Again, you ask, "Ralph, what does that really mean?"
Ralph Estep Jr.:
Now this is serious stuff. If the IRS believes you intentionally tried to cheat the system, there is no time limit on when they can audit you. That's right. They can go back decades if they have to. Yup. Decades. And the honest truth is, if they see something in a particular tax year, they're generally going to take a look back at your returns to see if you did that same thing in the past.
Ralph Estep Jr.:
So, let's all agree to play by the rules. Shall we? Let's move on to the final exception and that's number three. "Unfiled Tax Return." You know, those returns you just kind of forgot the file. If you haven't filed a tax return at all, the clock never starts ticking. The IRS can come after you for unpaid taxes indefinitely.
Ralph Estep Jr.:
Yes, you heard me right. If you don't file, they can come after you for as long as they wish. So if you've been putting off filing for whatever reason, now's the time to bite the bullet and get those return submitted. It amazes me just how many of my new clients will come into my office, assuming that well, since they didn't file, they didn't get a letter from the IRS, they're fine. There are some out, out of the woods, but they're wrong. So get those unfiled returns done now and stay out of the IRS hot water.
Ralph Estep Jr.:
I know this talk about audits can be a bit overwhelming, so let me offer some words of reassurance. The vast majority of taxpayers will never experience an IRS audit. In fact, the IRS audits less than 1% of the individual tax returns each year. However, and this is a big, HOWEVER, that doesn't mean you shouldn't be prepared. So here are a few actionable steps you can take to minimize your audit risk and face any potential scrutiny with confidence. These are my get out of the hot water with the IRS steps.
Ralph Estep Jr.:
And the first actual step is this: “File on Time, Every Time.” Now this one seems obvious. But you'd be surprised how many people fall behind on their filing of their taxes. Filing on time shows the IRS you're on top of your financial game. I have many clients who I only see every few years. They simply put off their filings.
Ralph Estep Jr.:
When I first started, I couldn't believe this. And then they get caught up down the road. I'm actually working right now with a client who hasn't filed in 2014 as best we can tell. And it's going to be an interesting case, especially since the client can't find most of the records for those missed filings.
Ralph Estep Jr.:
It's going to be interesting. I'll let you know how that plays out. Let's look at actionable step number two. And that's "Double-Check Your Work." Again, I'm going to quote my grandfather. He'd always say, "measure twice and cut once." In fact, I remember working in that wood shop where it seemed like we would measure 10 times before we were cutting. He was a very wise man. Truth is, though mistakes happen, but careless errors can and often will raise those red flags.
Ralph Estep Jr.:
So before you hit submit, review your return carefully or better yet have a tax professional give it a once-over. As a tax professional, I always recommend having someone like me prepare your taxes. When you're sick, you go to a doctor. When your pipes burst, you seek out a plumber. So when it comes to taxes, why not seek out an expert and avoid all that mess.
Ralph Estep Jr.:
Let's look at actionable step number three. I already talked about this a little bit earlier and that's "Keep Meticulous Records." I can't stress this enough. Keep receipts, keep invoices, keep bank statements, keep anything and everything that can support the information on your tax return. Organized records are your best defense in the event of an audit.
Ralph Estep Jr.:
And my final actionable step. Number four, "Don't be Afraid to Seek Professional Help." I mean it. Don't handle an audit on your own. And I dare to say, don't do your taxes on your own. Taxes can be complicated. And there's no shame in asking for help. A qualified tax professional can help you navigate the complexities of the tax code and absolutely ensure you're claiming all the deductions and the credit you're entitled to. Remember friends, being financially responsible is not just good practice.
Ralph Estep Jr.:
It's also reflection of our faith. When we manage our finances with integrity, we honor God and position ourselves for His blessings. It also allows us to rest our heads on the pillow at night without worrying about getting that dreaded IRS audit notice.
Ralph Estep Jr.:
All right. Well, let's recap what we covered today. We learned that the IRS generally has three years to audit your tax returns, but that timeframe can be extended to six years or even indefinitely under certain circumstances.
Ralph Estep Jr.:
We also discussed some practical steps you can take. I want to give you things you can do to minimize your audit risk, like filing on time. Double checking your work, keeping meticulous records and seeking that professional help when it's needed. Remember, knowledge is power. And understanding your tax obligations is crucial for achieving true financial freedom.
Ralph Estep Jr.:
And hey, if you've got a burning financial question you'd like me to tackle on the show, don't be shy. Head over to askralphpodcast.com and submit your questions. You just might hear it featured on an upcoming episode. This is your show and the topics we cover are based on your questions and ideas. That's the whole point. Ask Ralph.
Ralph Estep Jr.:
That's all the time we have for today. Remember to check out tomorrow's episode on navigating the potentially choppy waters of inheriting property with somebody else. Until then my friends. Stay financially savvy, and God bless you, and stay out of hot water with the IRS.
