Although a small percentage of the population actually gets chosen for an audit, it can be a time-consuming process if you actually get selected. When you are chosen for an audit, having receipts and other documentation on hand can speed the process along. If you do not have receipts during an audit, it can lead to some unforeseen consequences.
Asking for Receipts
When you go through an Internal Revenue Service audit, the auditor will request receipts from you to prove your deductions. If you do not have receipts, the auditor may be willing to accept other documentation, such as a bill from the expense or a canceled check. In some cases, the auditor will actually come to your house and review your records. In other cases, you must go to the local IRS office for the audit.
When you do not have receipts or other proof that you paid for expenses, the IRS may not allow you to keep the deduction. This is referred to as disallowing the deduction, and it simply get rid of the amount that you deducted. When this happens, it adds to the amount of taxable income that you have and makes it so that you have to pay a higher amount of taxes for the year.
New Tax Bracket
In some cases, when your deductions are disallowed, it will put you into a new tax bracket. When you complete your tax return, your gross income has deductions taken out of it before your tax bracket is calculated. Once you add the deductions back into your taxable income, it could put you back up into a higher tax bracket. At that point, you will pay taxes on your income at a higher tax rate than if you would have been in the lower tax bracket.
In some cases, when you do not have receipts to show that you actually spent money on one of your deductions, it could result in tax penalties. If you do not pay all of your taxes by the tax-filing deadline, it leads to a penalty based on the amount that you still owe. This penalty will have to be paid at the conclusion of the audit when you pay the extra amount of taxes that you owe.