An IRS Audit is the tool the Internal Revenue Service uses to verify the accuracy of your tax filings by reviewing your supporting documents, income statements and expense calculations. If your income tax return is flagged for an audit, it doesn’t mean the IRS is out to get you. Quite simply, your tax return may have been picked by the government’s computer and there is no guaranteed way to stay out of the crosshairs for random selection. An IRS tax audit can be time consuming but stay calm and get organized. Providing your IRS auditor with information in an organized manner can actually reduce your exposure by limiting the agent’s scope. Your timely response makes it look as if you have nothing to hide and presents the image of being a “squeaky clean” taxpayer. Remember, there is no such thing as idle conversation during an IRS audit, so be aware of your actions for the duration of the tax audit.
The easiest way to avoid the stress associated with an IRS Audit is to keep good records, prepare an accurate return and pay your taxes. If you are audited anyway, then you will already have all of your ducks in a row. Listed below are simple tips for today’s diverse wage earners:
- Keep Good Records – Regardless of your vocation, good record keeping is always the best defense when your tax liability is questioned by the IRS.
- Substantiate Income & Deductions – Always take the time to document your source of income. This can be as simple as depositing all receipt of money into the same bank account. Your claimed expenses should be well documented on your filed tax return.
- Software Record Keeping – Several websites offer a free downloadable version of their easy-to-use accounting software. Accounting doesn’t have to be fancy as long as you maintain good records for earned income and tax-deductible expenses.
- Home Office Deductions – The growth of web-based home businesses has made it easier to fly below the radar when claiming a portion of costs of your home as a legitimate tax deduction.
- Receipts for All Donations – Keep the receipts for charitable donations of goods and/or cash made to each charity as claimed on your IRS return.
When the IRS auditor is finished, you will be presented with a bill. At this point, you have the option to agree with the findings and sign the IRS document or you can request a hearing with an IRS appeals auditor if you disagree with the findings. If you know that you have been flagged for an IRS tax audit, it is always a good idea to discuss these options with an enrolled agent or other qualified tax consultant prior to your audit. The IRS does check every tax return for math errors and discrepancies between documents and claims made on your tax return. Although more than 1.1 million tax returns are audited each year, the vast majority of IRS inquiries are made by a letter sent to the taxpayer. If you receive a letter of inquiry from the Internal Revenue Service, read it carefully, be certain that you understand what you’re being asked and respond in a timely manner. Should you have questions regarding an IRS Audit, call Dana & Fullam at (925) 626-4900 to speak directly with an enrolled agent about your tax solution.