How to Prepare For a Tax Audit
So, you’ve done your taxes and the IRS has sent you a letter that you are being audited. You may feel like the walls are caving in, you’re having panic attacks, and you have no idea what to do. Taking a deep breath and reading this article can help you prepare for an audit. You don’t have to be nervous. The IRS audits are just trying to figure out if your income and figures match; it simply inquires about your tax return. The IRS defines an audit as,” to determine if income, expenses, and credits are being reported accurately.” Here are a few tips on how to prepare for a tax audit.
How Do I Handle an IRS Audit?
The first step to handling an IRS audit is reading and acknowledging the notification letter. Don’t ignore the IRS letter, even though it might seem easier and tempting to ignore bad news. Read it, read slow, and read it again.
Check the letter is legitimate and notifies you of an audit. An IRS audit letter will come to you by certified mail, it will include personal information such as name, taxpayer ID, form number, and employee ID number. Just because you receive a letter from the IRS doesn’t automatically mean you’re being audited.
Read which year in question they are auditing, and what documents they are specifically asking for. Prepare all the necessary returns and explanations for the representatives.
Types of IRS Audits
There are different types of IRS tax audits. These are:
- Correspondence Audit
- Office Audit/In-person Audit
- Field Audit
- Taxpayer Compliance Measurement Program Audit
Preparing for An In-Person Audit
If you’re going for an in-person interview, there are steps you can take to prepare. There is a physical interview at the IRS office where you will speak with IRS employees. It is possible that the IRS will ask for proof of abnormally high deductions.
Gather the necessary returns and explanations that were requested in your IRS letter in preparation for this office audit.
During this audit, don’t say more than what is asked. Offer no more documents than what was requested. Saying more leads to more questions, so say less.
If you feel that an attorney is necessary, you have the right to have him or her present.
Preparing for a Correspondence Audit
Correspondence audits, also known as mailed-in audits, involve the IRS requesting additional information, such as receipts or canceled checks, regarding your tax return. In many cases, this audit will only ask you to correct a simple mistake that you can correct by mailing in all the correct documents. Providing the correct documents and reading your letter carefully can simplify these audits.
Preparing for a Field Audit
The last type of IRS audit is a field audit. This is where the IRS may actually come to your home or to your job. This can be scary but remember to breathe and don’t offer information if you aren’t fully prepared. Remember if you feel that you need an attorney or tax professional you can request to have the audit done in their office.
Tips for Preparing for an IRS audit
- Understand the Issue
To better prepare yourself for any of these types of audits, read up on the tax laws that are specific to the problem. Knowing this information will better prepare you for questions asked by the auditor and leave them more satisfied with your answers. - Be polite and honest
When being questioned be polite and courteous and answer each question truthfully. It is not wise to lie to the IRS. - Gather the right documentation
Make sure that all the documents presented are accurate, clear, and on time. Be sure you have all the documents at the auditing. If you have all the correct information the auditing process will run much smoother. - Request more time
If you feel that you need more time to prepare for the audit you can request it. Don’t hesitate to let the IRS know. You can go on their website and request more time to prepare.
What Happens After an IRS Audit?
Once all the auditing is wrapped up you will receive an examination report, which is wise to look over carefully for anything that might confuse you. Don’t hesitate to call the IRS and ask about anything you need to clarify. If you disagree with a finding let them know, so that you and the auditor can come to a compromise.
If you follow these tips then the audit process will be a breeze, or at least a little easier to handle.
You can learn more about the different types of IRS audits and what happens in an IRS audit in our dedicated blog post.
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