It’s the IRS’ job to collect every cent owed to the federal government. They sift through your returns year after year to ensure that you’re not cutting corners when filing your tax returns. However, if you do receive the dreaded ‘audit letter’ and your return has been set aside for review – here are six tips to help you “survive” (it’s not that bad) an IRS tax audit.
Quick Response is Key
It’s not a check in the mail or winning sweepstakes, but there’s no need to bury your head in the sand at the sight of an audit letter from the IRS. The worst thing you could do is let it collect dust. Ignoring the letter will only result in further action against you and could even result in you owing the government more money.
As soon as you receive the letter, be sure to respond within the allotted 30 days. If you fail to respond within the stipulated time frame, the IRS may void exemptions you included in your return. Failure to respond could even raise the amount of money that you owe.
Question the Audit
The IRS is typically good at communicating why your return is being audited. However, if they don’t or fail to explain why your return is being singled out – you’re within your rights to ask for an explanation.
Some common reasons that you could be audited:
- Inaccurate or false reporting of income. Typically does not match your 1099, W-2, or cash earnings
- An unusual amount of deductions on your return
- Inconsistent information (Details pulled from your prior years’ returns)
- Selected at random by the IRS computer system
It’s much easier to act accordingly when you know the-why. This process can be a smooth one when you know what information the IRS seeks.
Learn What to Expect
The process of dealing with the IRS may sound like meeting face-to-face with an IRS auditor in a cold, windowless room. However, in most cases, the IRS will communicate via direct mail or e-mail during the audit.
The majority of the correspondence should explain the reason for your audit and the documentation that is needed from you. You may (or may not) be asked to provide proof of your expenses/income. It’s best to send in copies of your documents rather than the originals.
Gather & Organize Your Papers
Once you receive your audit letter, you should begin prepping any paperwork that has been requested.
Here are some of the documents that may come in handy during the audit:
- Earning statements like your 1099 or W-2
- Medical bill statements
- Receipts for donations
- Receipts for home business expenses
Be sure to make copies of these documents for both yourself and the IRS. It’s best to mail or fax the requested paperwork to the IRS.
Get Help if Needed
It may seem frightening or frustrating at first sight of this audit letter. However, it’s critical that you stay calm and avoid losing your cool.
Things will run smoother if you act respectfully to the auditor and be honest about the information you’re being requested. It’s also a smart idea to seek out professional tax guidance if you’re unsure how to proceed or need help grasping your numbers.
A CPA is knowledgeable on current IRS tax codes and trained to represent clients during an audit. This tax professional can act as your intermediary and ensure that you are treated fairly during the process. They’re also there to advise you on what information to give out – and (more importantly) how to avoid incriminating yourself.
An IRS audit may seem like a complicated and overwhelming task, but with these tips, you’ll ease through the process – avoiding unfair taxes and fines.
Stander & Company is There for You
An excellent CPA service can become as important a part of your business as your upper-level management. They can advise you on your company’s financial decisions and help you make sure your business is on the best path for growth.
If you’d like to get started with growing your business, check out the rest of Stander & Company’s site. Along with our CPA services, we provide bookkeeping, payroll, and business consulting services. Contact us today to start growing your company the smart way.