The last thing any taxpayer wants is an audit by the IRS, but it can happen to anyone. Your tax return might have been flagged for audits for numerous reasons, whether they are personal or business related. Whatever the cause, receiving that letter in the mail is no fun. Find your receipts, follow our guide, and make your audit as painless as possible.
Keep calm and figure out what the IRS wants.
Chances are, the IRS won’t be literally knocking on your door anytime soon; 76% of all tax audits are conducted solely through mail correspondence. The audit could be relatively painless. Maybe the IRS is asking for additional forms or documentation of your new income. Whatever you do, don’t throw away the letter and call it a day. You have a month to respond to the letter, and the IRS won’t hesitate to collect what they believe is due. Hiding the letter won’t make them go away.
Prepare for your audit.
Although most audits take place through mail, you might be subject to an office exam or a field exam. Both are more intimidating than the correspondence audit, as you’ll be directly working with a revenue agent, but the office exam is the lesser of two evils.
The in-office audit requires you to go to your local IRS office. The entire process may take a few hours, but the IRS is looking to review specific items on your return. Unlike a correspondence audit, you’ll be given more time to collect your documents and head to the IRS office, as they will usually require more information.
If you have the misfortune of being chosen for a field exam, you‘ll be personally visited by an IRS revenue agent. The agent will be thoroughly examining your business in search of any discrepancies in your tax return. When faced with this stressful situation, you should approach the exam with transparency; present all of the relevant documentation for the scope of the audit.
Be honest, but be brief.
When it comes to the IRS, honesty is the best policy. However, too much honesty could provoke additional audits. An agent may be polite and courteous, but they aren’t there to be friendly. Small talk or off-handed remarks can open the door to a broader audit.
Avoid making the problem even bigger, but don’t let the IRS walk all over you. If you’re in the right, be sure to have the papers to back up your claim. You can slash your IRS bill from $50,000 to $5,000, assuming you have thorough documentation. Since it can take a couple years to be audited for a certain year, you might not have every single receipt from that year’s return. If you need copies of previous years’ tax forms, try contacting old employers. Your bank and bookkeeper can also be a great help in finding every last canceled check, invoice, and statement. Let your records do the talking.
