Tax Audit Guides

Tax vs. Audit: The 5 Key Differences and What They Mean

Take one look at the IRS website, and your eyes will probably glaze over after a few seconds of reading all that legalese. Although the IRS is the leading authority on tax information for Americans, it doesn’t exactly explain concepts in an easy-to-understand way.

Take tax vs. audit, for example. They’re related, yes, but how? Fortunately, you don’t have to crawl the IRS website to find the answer. We explain five big differences between these terms below.

Tax vs. Audit: What’s the Difference?

There are five key differences between taxes and audits. Let’s go over each of these differences one at a time.

1. The Definition of Tax vs. Audit

A tax is a financial charge the government imposes on income, goods, and services. Taxes are compulsory, so you can’t avoid paying them (sorry).

On the other hand, an audit is an independent examination of one’s taxes, financial records, or systems. When you hear the word “audit,” an IRS audit is probably the first thing that comes to mind. However, stakeholders can request audits of a business, too. For instance, an accounting firm may audit a business to ensure its financial books are in order.

2. Purposes of Taxes and Audits

The government uses taxes to pay for public works and services. Nobody likes to pay taxes, but without them, we’d have pothole-ridden roads, crumbling schools, and dirty, foul-smelling tap water.

Taxes also help pay for benefit programs like Medicare and Medicaid. Many such programs are available to low-income people. So, by paying taxes, you’re doing your part to help those less fortunate than yourself.

The purpose of audits is to find and prevent discrepancies and fraud. For example, the IRS might perform an audit if it suspects a taxpayer of underreporting income or taking questionable deductions.

3. Scope of Taxes and Audits

Taxes affect almost everyone, except those who don’t earn enough money to file taxes. For the 2023 tax year, for instance, a single-person household only has to file if it earned more than $13,850. A married couple filing jointly must file if their total income exceeds $27,700 (if both spouses are below age 65). Interestingly, a married person filing separately has to file if they earned as little as $5.

IRS audits only affect people or businesses in certain circumstances. For example, the IRS might want to audit a business if it has reported losses for the past several years.

4. Timing of Tax vs. Audit

Typically, taxes for individuals are due on April 15 every year. For businesses, taxes are due on the 15th day of the third month after the end of the fiscal year. Self-employed people must also pay quarterly taxes (if they don’t, they might owe an underpayment penalty at the end of the year).

Comparatively, IRS audits can happen at almost any time. That’s because the IRS has up to three years to perform an audit after people have filed their tax returns. However, the IRS can audit returns indefinitely in some cases, such as:

  • The taxpayer purposely evaded taxes
  • The taxpayer filed a fraudulent return
  • The taxpayer didn’t file a return at all

5. Tax vs. Audit Roles

During the busy season before taxes are due, you’ll find various people working in tax-related roles. They can include accountants, tax preparers, tax consultants, and tax relief assistants.

Auditors are individuals or companies trained to assess one’s taxes or financial statements objectively.

Learn More About Taxes vs. Audits

Have more questions about tax vs. audit? Contact Levy & Associates at (800) TAX-LEVY or contact us online for a consultation regarding taxes and audit standards.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.