Once your tax return has made it from your hands (or, more likely, your computer) to the hallowed halls of the IRS, all you have to do is wait—for your refund, if you’re owed one, or for any notifications of errors or miscalculations.
So what’s happening at the IRS during this time? After you file your return, what exactly do they do with it?
Let’s take a look at the post-filing journey of your tax return, from the moment you file to when it’s been fully processed.
How does the IRS process tax returns? A step-by-step breakdown
Initial processing, or tax status “accepted”
If you've e-filed your small business tax return, whether through a tax preparation software platform, through a professional tax preparer, or through Bench’s tax service, the IRS will acknowledge the receipt of your return by sending you an email stating that it has received your tax return. This typically takes 24-48 hours after you’ve e-filed. If you’ve filed by mail, you’ll receive a letter stating that your tax return has been accepted.
Until then, your return will be in “pending” status. State returns may take longer to be accepted, staying in “pending” status for several days.
During this time, the IRS is completing their initial processing of your return. This involves a preliminary review to ensure that all necessary forms are included and that the information provided is complete. Tax software platforms will complete this same type of check prior to submitting it for you, as will Bench’s tax advisory and preparation team.
Checking for errors and inconsistencies
In the next step, the IRS meticulously examines your tax return for errors and inconsistencies.
This thorough review includes verifying income sources, deductions, and credits claimed. They will look for any mathematical errors, inconsistencies between what you’ve claimed as paid wages and what your employees have claimed, and whether the deductions you’ve claimed are allowable. They will also look for any signs of tax fraud that would trigger an audit.
As you can imagine, any mistakes or inconsistencies in your tax return will only add to the length of time it takes the IRS to complete processing, as well as increase the likelihood of an audit of your business. This is why accuracy is of paramount importance.
Checking for refund or tax liability
After fully confirming the accuracy of your tax return, the IRS determines whether your business is eligible for a refund or has a tax liability.
If a refund is due, the IRS begins the process of issuing it to you through either direct deposit or a paper check. Direct deposit is much faster, and we always recommend choosing this option if possible.
If your business owes additional taxes, the IRS will let you know the amount they believe you owe via a mailed letter, as well as how to pay.
Handling of issues or audits
If there is a minor problem with your return, such as an incorrect deduction or a missing form that you forgot to file, you will receive a letter from the IRS notifying you of the issue. That letter will contain all the information you need to resolve the issue, and there’s usually no need to do more than what is listed.
If the problem is more extensive, however—if several forms are missing, or you claimed deductions that you are not entitled to, you may end up with a notice of an audit. In this case, you’ll receive a letter in the mail notifying you that your business is being audited, and giving you an explanation of why as well as instructions on how to proceed.
Audits are performed either by mail or in person by IRS representatives. It goes without saying, of course, that cooperation during an audit is crucial to ensuring a smooth resolution.
There are cases in which your business might be selected at random for an audit, even though there were no issues with your tax return. This will be noted in any mailed notice you receive.
What do the different tax statuses mean?
Once you’ve filed your tax return and it’s been received by the IRS, your return’s status will be listed as “accepted.”
After that, it can take between three and 21 days for your tax return to be “approved,” which means it’s been checked by the IRS and everything has been verified as correct. Once you get that notification, your tax season is over!
You could also get a “rejected” status for your return if something is wrong with it, like a Social Security number that was typed wrong, or a dependent that doesn’t match the IRS’s other records. In this case, the IRS will tell you what’s wrong so you can fix it and resubmit.
What if approving my return is taking more than 21 days?
If it’s been more than 21 days and your tax return is still sitting in “accepted” status, you can call the IRS Business hotline at 800-829-4933. You can also visit your local IRS office, which you can locate here.
When will I receive my refund?
Typically, if there are no issues with your tax return, you will receive your refund within 21 days of when your tax return was accepted. You can always check the IRS website’s Where’s My Refund? tool if you have questions about whether it’s been processed.
Staying on top of your taxes is essential to growing your business
While there’s plenty about taxes that small business owners don’t need to commit to memory and can leave to the pros—how to depreciate property, for instance—there are certain things that are critical to stay on top of:
- Knowing the status of your tax return
- Addressing any issues promptly
- Meeting filing and other deadlines, as in the case of a needed correction or audit
Bench, a professional bookkeeping service, can play a crucial role in assisting small business owners with comprehensive support in managing financial records, ensuring accurate tax filings, and navigating the complexities of IRS processes.
When you’re ready to outsource your taxes
Bench’s bookkeeping and tax advisory, preparation, and filing services are designed to help small business owners with the tasks they don’t want to do, so they can get back to the ones they do. Our professional bookkeepers and tax advisory team will make sure you claim every deduction you’re eligible for, and make tax time a breeze.
To get started, sign up for a free consultation.
