11 Tips To Survive An IRS Audit
Even the most diligent individuals can sometimes fall victim to an audit. In fact, you actually have less than a 5% chance of being audited by the IRS, but being audited is still likely. If you are selected, the audit will focus on your personal taxes and what expenses you have claimed. If you’ve been notified that your tax return is being audited by the IRS, don’t panic just yet. It doesn’t mean that they suspect anything fishy; more often than not, it means that something within your tax return didn’t add up exactly as they expected, and so they need to dig a little deeper to understand why. Fortunately, in almost all cases, an audit isn’t nearly as scary as it sounds. In this blog post, we outline 11 tips for surviving an audit and coming out with flying colors…
Know your rights when it comes to an IRS audit.
There are certain rights that you have when it comes to an audit and it’s important that you are aware of your rights. The first right is that the IRS agent who will be auditing you must introduce themselves and inform you of why you have been selected for an audit if you weren’t already informed. The second right is that you have the right to decline the audit, but if you do, you will not be able to claim any tax deductions or credits on your tax return. The third right is that you have the right to have your spouse or partner present during the audit if you would like. The final right is that you have the right to request that the audit take place in the IRS’s office, at your place of business, your accountant’s office, or in your own home.
Don’t delay, respond immediately.
Obviously, you don’t want your tax audit to drag on for months or years on end, but at the same time, you want to be given every opportunity to explain your side of the story. The IRS will send you a letter informing you that you have been selected for an audit, and they will give you a phone number or email address to contact them. You should respond to the audit as soon as possible, even if you don’t have all the documentation required at that point. Be honest about what you don’t have, but be sure to let the IRS know that you will be getting in touch with them as soon as possible with the rest of the required documentation.
Pull together your documentation.
The last thing you want to do is be selective about the documents you provide to the IRS auditors. Even though you may not have been given a reason as to why you’ve been selected for an audit, you can assume that the auditor will be looking at your deductions and expenses. Therefore, when pulling together documentation, make sure that you gather everything. Keep all of your receipts in one place, such as a large folder or a box, and make sure that they are organized and easy to find. Keep all of your receipts in a safe place, either digitally or in a fire-proof box, so that you don’t accidentally throw them away. Keep in mind that the auditor will be looking at everything, and even the smallest mistake could cause you to lose out on valuable deductions.
Send in your own response together with the IRS’s response.
If you have been selected for an audit, the auditor will send you a questionnaire that you will need to respond to. However, many taxpayers are tempted to simply put the questionnaire aside and wait for the auditor to come to their home or place of business. This is a bad idea. If you’re being audited, the IRS is likely going to be on the lookout for mistakes on your tax return. Therefore, you need to be prepared to defend your deductions and expenses. In your response, you should state your income and deductions, and you should provide proof of your sources of income. For example, if you work as an employee, provide a copy of your W-2 or a 1099 tax form. You should also include a list of any deductions or expenses that you have claimed.
Don’t forget about your tax deductions.
You will also need to prepare documentation to support your deductions. Common deductions that are often questioned during an audit include: Travel expenses, such as car expenses and airfare. Deductible medical expenses, including prescription drugs, hearing aids, and eyeglasses. Deductible charitable contributions, including cash and non-cash gifts. Business expenses, including advertising expenses, education costs, and professional memberships.
Ask for a meeting with a tax specialist
If you are really worried about your audit and don’t feel like you have all the documentation in order, or even if you have all the documentation in order but still feel anxious or worried, you can ask to meet with a tax specialist or even a manager at the IRS office. This will not only give you peace of mind, but it will also help expedite the process. If you’re asking for a manager to meet with you, be sure to mention that you have already been in contact with an auditor and that you would like to discuss concerns with the manager in private.
Be honest and transparent
During the audit process, the IRS will be looking for any discrepancy in your audit and will be on the lookout for any mistakes. The best thing that you can do is be completely honest about everything. It’s not uncommon for individuals to accidentally make a mistake or underestimate their income or overestimate their deductions. If this happens, you should be honest about it. Letting the IRS know that you have made a mistake is better than letting them think that you are trying to deceive them.
Take note of the IRS agent you’ll be working with
When you are waiting for your audit to begin, try to find out who your auditor will be. Not only will this help you feel more at ease, but it will also give you time to think about all of your deductions and supporting documents. Ask your friends and family if they have ever been audited by the IRS. If they have, ask them if they remember who their auditor was. If all else fails, you can always call the IRS to try and find out who will be auditing you.
Don’t be afraid to ask for more time.
If you don’t have all the documentation in order, and you don’t think that you will be able to get it done in time for the audit, let the IRS know and ask for more time. The IRS understands that everybody has busy lives and that sometimes it can be difficult to gather all the necessary documentation. If you have reason to believe that you won’t be able to gather all the documentation in time, let the IRS know as soon as possible and ask for an extension.
Be ready with receipts for all of your deductible expenses.
The IRS will be looking for any discrepancy in your audit, and they will be on the lookout for any mistakes. However, if you are completely prepared with receipts for all of your deductible expenses, you will be able to defend them with ease. Remember that your audit could result in a tax refund and that any discrepancies that the auditor finds could actually be in your favor.
Respond to all IRS requests in writing
Finally, when the IRS is requesting information from you, be sure to respond to them in writing. If they send you a letter requesting certain information, be sure to respond back with the information they are asking for. If they send you a letter requesting that you schedule an appointment, be sure to respond back with the date you will be available. If you are audited, don’t panic – just follow these 10 tips, and you will come out with flying colors!