An audit necessitates substantiating income, deductions, and credits claimed on a tax return. The absence of documentation, such as receipts, presents challenges in validating these claims to the auditing agency. Without adequate proof, the agency may disallow the claimed items, leading to adjustments in the tax liability. For instance, if business expenses are deducted without receipts, the agency may deem them unsubstantiated and increase the taxable income accordingly.
Maintaining accurate records is crucial for demonstrating compliance with tax laws. Proper documentation strengthens the taxpayer’s position during an audit, potentially minimizing or avoiding adverse outcomes. Historically, the burden of proof rests upon the taxpayer to justify the figures reported on their tax return. Failure to meet this burden can result in penalties and interest charges, significantly increasing the financial impact of the audit. Furthermore, consistent and organized record-keeping simplifies the audit process, reducing stress and potentially shortening its duration.
