You know what they say. There’s only two certainties in life – death and taxes. The good news is that you only have to get your calculator out for one of them. Preparing for an IRS audit is not something that people tend to enjoy. It is fussy, fiddly, and time consuming. But, unfortunately, it is a legal obligation for all who are selected.
So, aside from crossing your fingers and toes for good luck and another audit free year, there isn’t anything that you can do to avoid the tax man. However, you can take steps to prepare for a visit from the IRS, just in case you do get the call. In fact, the IRS strongly recommends that all taxpayers file and handle their records with the expectation of an audit, because it makes the whole process much quicker and simpler if does happen.
These handy hints and tips for preparing for an IRS audit will help you make sense of all of those pesky numbers and figures.
Understand the Process
It’s going to be much harder to give the IRS what they want if you don’t understand the audit process. Fortunately, it’s surprisingly straightforward. Audits are designed to verify and confirm all of the details that you have submitted on your tax return. Ultimately, they are there to check that people aren’t claiming tax cuts, exemptions, or deductions that they aren’t entitled to.
Stay Calm and Don’t Panic
This means that, as long as you have filled out your tax return as accurately as possible – and not included any fraudulent details – your audit is going to be a run of the mill (probably randomly selected) exercises to tick the boxes. You have nothing to worry about, because you should have all of the same paperwork used to fill out the tax return ready to show the IRS representatives
Know That Time is On Your Side
The IRS isn’t out to get you or make your life harder than they need to. If you desperately need more time to get your documents and financial records in order, you can request it. This is a good idea for people who know, right away, that their administrative efforts aren’t going to go down well with IRS agents.
Start Preparing Your Records
As soon you know that you have been selected for an IRS audit, you need to start putting your papers in a logical, consecutive order. They need to form an easy to understand picture of your tax year. The faster that the IRS agents can work through the financial events of the year, the quicker they will leave and let you get back to normal.
Get Advice On Reconstructed Records
Once you start preparing your financial receipts and other documents, you might find that there are small holes here and there. You may have lawfully claimed an expense, but not put the original document in with your files. In this instance, it is okay to produce a duplicate of the document in question. So, for example, if you claimed for a new laptop, but lost the original paper receipt, you can chase up online confirmation or purchase emails. The rules can be tricky for this sort of thing, so you may want to seek advice from the IRS if you’re not sure.
Find Your Voice and Speak Up
The myth of the big, scary IRS man, arriving on the doorstep with a huge book of rules and regulations and a bloodthirst, is simply not accurate. Yes, the IRS can increase the amount that you have to pay and it can penalize you for mistakes on your return, but it cannot do this without evidence of intent to deceive. The reality is that its agents want your audit to go smoothly just as much as you do. Always remember that you have a voice; it is within your rights to ask questions, raise concerns, and discuss your tax arrangements.
Make the Right Decisions
What this means is that you have the opportunity to correct mistakes right then and there, during the audit. For most taxpayers, speaking up is a scary prospect, because they forget that the process moves in both directions. By offering up the most accurate and useful information that you have, there is just as much chance of you being slapped with an unexpected repayment as a penalty or additional charge. In other words, don’t lie; if you suspect that there are minor mistakes on your return, explain this during the audit.
Choose Your Preferred Location
It is also within your right to pick a location which is not your home or business. If you have an accountant, the best thing to do is meet with the representatives at their office. It is worth pointing out that many tax audits aren’t even conducted in person, these days. They are completed over the phone or via email. However, when it comes to direct appointments, you may feel like an at home meeting is a breach of privacy. While the IRS does have the legal authority to demand a meeting at your home, this is very rare.
Acknowledge Your Rights
It is important to remember that, as a US citizen, you have many valuable rights. Many of these extend to include IRS audits. You have the right of appeal, for example, if the end result doesn’t seem fair or just to you. You are also permitted to have an accountant or other financial advisor represent you during an audit, if you cannot or do not wish to be present. You may tape record all or any of the process to be used as evidence in an appeal later. There is a robust and very serious system in place to deal with any IRS agent or representative who does not behave in a professional manner towards taxpayers.
Stick to the Relevant Details
One of the ways that you can make life much easier for yourself is by staying on topic. While you are obligated to answer all questions asked by the IRS auditors, there is no reason to give them additional information. Stick to the relevant year and try to keep financial transactions and events from outside of this time frame (and your most recent tax return) to yourself. These details are not needed, unless requested, and they can end up causing unforeseen conflicts.