“IRS” and “audit” are probably two of the most feared words in the English language, but they do not need to be. Unless you excessively lie on your tax return, your odds of getting audited are actually very slim. However, even if you do get audited all you basically have to do is provide the IRS with verification of the information in your return. It may seem like a daunting task, but with the right guidance you can easily survive that scary audit.
Always Be Prepared
Technically, every single taxpayer is eligible for a tax audit. While some audits are selected because the taxpayer’s return flagged the system, many are conducted entirely randomly. This means that as a taxpayer you should be prepared for the possibility of an audit at all times. You should make sure to you keep all financial documents, W-2’s, receipts, etc., in one safe place. That way if you are audited, you can easily find everything you will need to verify your income and deductions. Although there is no way to fully avoid being audited, you can follow some of these tips while preparing your next return to try to reduce the odds.
Read and Respond to Notices
Generally, when the IRS notifies you of an audit you must respond within 30 days. If you do not, then you risk having the IRS review and adjust your total tax liability without getting your input. In addition to responding quickly, you will also want to take a thorough look over the notice. It will give you specific information on what is being examined, so that you can prepare for your audit knowing exactly what is being scrutinized.
Know your Rights
Do not let yourself get intimidated by aggressive IRS agents, as a taxpayer you have a set of rights designed to protect you and your money. You have the right to select where the audit takes place, when it takes place, etc. Do not let an auditor intimidate you in to having an audit at your place of business unless that is where you want it. To learn more about your rights during an audit, check out IRS.gov.
Take your Time
Just like you, the IRS makes mistakes and easily could have made one on your case. Take your time compiling your records and be absolutely sure you have everything that you need. Do not let an IRS agent push you into setting a date for your audit. Take as long as you need to gather all of the financial documentation that you need in order to justify the tax return in question.
Replace Missing Records
If you cannot find any crucial receipts or financial documents then be sure to get a duplicate as soon as possible. Do not make the mistake of going into an audit claiming that you lost some of your receipts, as it will do you no good. If you cannot provide an auditor with proof of the expense or deduction then your tax liability is likely to increase.
Be as Brief as Possible
During the audit, you will want to be as brief as possible. The IRS representative is going to ask you a lot of questions, and you should attempt to answer as many as you can with a simple yes or no answer. If you must explain an answer further then try to be as brief as possible, you do not want to give the auditor any more reasons to be suspicious. Also, make sure that you only give them copies of the returns in question. Do not ever give away your original tax return.
Prepare your Wallet
While some audits yield no changes at all, you should always go into an audit knowing that you may have to fork over some money to the IRS. Depending on what you are being audited for, the total amount due might be under $100, or it may be in the tens of thousands. However, if you believe their calculations are off, you have the full right to appeal.
Appealing an Audit
When you receive your copy of the examination report, be sure to look if over carefully. If you do not agree with it, first try speaking to the auditor’s manager. If doing so does not yield any change, then feel free to appeal the audit. However, doing so can be a difficult process and you might want to enlist the help of a tax lawyer to fight your case.