Has the IRS or a state tax agency contacted you about an audit? You’re not alone. Every year there are millions of people contacted about audits, and that number is growing every year.
The effective way to survive a tax audit is not to get audited in the first place. The IRS expects that you’ll make honest mistakes when filing your taxes, but if you make too many mistakes or deliberately try to hide income, there’s a good chance you’ll be selected for an audit.
To help make your audit just a little easier, we’ve put together this guide to surviving a tax audit so you can get your life back.
Know what a tax audit is and what occurs during the process.
Respond to the IRS audit ASAP.
Be smart with your records and documents.
Avoid handling an audit alone before the IRS.
Appeal the audit if you disagree.
Consider hiring a tax expert if you’re going to be audited.
Know what a tax audit is and what occurs during the process.
In a tax audit, the IRS or a state taxing agency examines a taxpayer’s tax return to check its accuracy and validity. Tax audits can happen randomly, by mail, or in person, in which case they’re called field audits.
Tax audits happen because the IRS suspects you of underpaying taxes on your income. The auditors will compare what you reported on your taxes against what they found during their investigation. If they find any discrepancies between the two, they’ll send you a letter saying so (and often asking for more information).
It’s crucial to remember that not all audits are created equal. Some kinds of audits only ask questions about specific parts of your return, while others may examine every aspect of it (in other words: some are less invasive than others).
The stages of a tax audit include:
- Discovery phase
The auditor tries to confirm whether there is any basis for suspicion regarding your taxes
- Investigative phase
Auditors go through all relevant documents and then come up with conclusions based on those documents.
- Closing phase
The auditor makes recommendations for further action, such as penalties or criminal charges, depending on whether any violations were found during their investigation.
The IRS is required to let you know why your return was chosen for an audit. However, you have the right to request clarification if it doesn’t or if you don’t understand the reason.
The following are some of the more frequent causes for an audit:
- Falsely reporting income that does not correspond to what is on your W-2, 1099, or statement of cash earnings
- Deductions on your return that are more than usual
- Information that doesn’t match what was disclosed on your prior year’s returns
- IRS computer system choosing at random
When you know why you are being audited and what information the IRS needs from you regarding your return, you may take the appropriate action in your own best interest.
Respond to the IRS audit ASAP.
If you don’t respond to an IRS notice in a timely manner, you can face penalties and interest charges on top of the amount you owe. Ignoring the IRS notices will also trigger them to forward a notice of deficiency or tax lien under your name. The IRS will also send their collections department after you, which means there’s also a chance of getting hit with additional fees if they have to do everything manually.
The best way to avoid these costs is by responding to the IRS as soon as possible—that way, they can get back on track with their collections process and put all of their focus into finding payment options that work for you. If you wait until the eleventh hour or ignore the notice altogether, it could end up costing you much more than just responding sooner would have!
If you get a notice from the IRS, don’t ignore it—respond or get in touch with an experience tax debt relief agency immediately!
Be smart with your records and documents.
When dealing with an audit, one of the most important things you can do is keep good records and documents. The IRS has particular requirements for record-keeping that fall into two broad categories:
- Personal Records – These are the documents you need to keep so that you can adequately prepare and file your tax return each year, including W-2s, 1099s, receipts for charitable donations and childcare expenses (Form 8396), etc.
- Business Records – These are the documents related to your business activities (or any other income sources), such as bank statements, mileage logs, or contracts with clients/customers.
The more organized and thorough you are with these items—both in their preparation and storage—the better off you’ll be during a tax audit.
Avoid handling an audit alone before the IRS.
When you handle the IRS on your own, you risk making mistakes that could cost you time and money in the long run. You may also end up giving away more than you need to because of an inefficient filing process. If the IRS finds out that you’ve made mistakes in previous filings, they’ll try to collect back taxes from past years—and that’s not something anyone wants!
If you are subjected to a notice from the IRS, it’s essential to be prepared. Your case is much more likely to be resolved quickly and, in your favor, if you are conscious of your lawful obligations and the procedure.
The most important thing for any taxpayer is knowing their rights when dealing with an audit or investigation by the IRS.
If you are facing a tax investigation from the IRS or have been notified that you owe them money, you mustn’t just accept what they say at face value. You should contact an tax debt relief attorney specializing in these matters to help you understand your rights and options under the law.
Appeal the audit if you disagree.
If you disagree with the conclusions of your audit, you can appeal. To do so, you must submit a letter to the IRS within 30 days of receiving the audit results. This letter should contain:
- Your name, address, and social security number
- A statement that explains why you are disputing their findings. Be sure to provide any evidence that supports your position. For example, if the auditor accused you of failing to report the money on your tax return but has no proof (such as a bank deposit slip), include this information in your appeal letter.
When writing an appeal letter, it’s vital that it is written professionally and not emotional or threatening in any way. The IRS looks at appeals differently than other correspondence they receive from taxpayers because of how stressful audits can be for people who are being audited for the first time or feel like they’ve been mistreated by their auditor (and sometimes even experienced ones).
Consider hiring a tax expert if you’re going to be audited.
It could be worth hiring an expert if you’re dealing with a complicated tax situation and think you may be audited. This can help you avoid negative consequences and get out of debt. There are several different options for dealing with your audit, and one of them is getting help from a tax debt relief expert.
The IRS will typically notify you if they think there’s an issue with your taxes, and they’ll give you 30 days to respond before they take any further action on their end. If you don’t get a feedback within 30 days—even if it’s just because you didn’t know how to respond—the IRS will start taking action against you on their end. They’ll send notices of proposed adjustments or liens, making it difficult for you to take out loans or buy property in the future.
You can avoid all this by getting help from a tax debt relief expert immediately! A professional will be able to review your case and determine whether there is an actual problem with your taxes or not. If not, then there’s no need for concern!
A qualified tax debt relief professional from Tax Fresh Start Initiative will know how to deal with the IRS and keep your records organized. They can also help you receive refunds on unpaid taxes and eliminate back taxes owed to the government.
These are some of the essential tips to keep in mind when you’re going through a tax audit. If you have additional questions or assistance understanding how to navigate the process, contact Tax Fresh Start Initiative today! We’ll help you ensure everything goes smoothly with your audit and any challenges that may arise along the way.
