Last week I gave you 5 Essential Tips to Avoid Getting Audited, but I also told you those would reduce your chances but not be a 100% guarantee that it will never happen to you.
So, what do you do if you’ve received a notice from the IRS about a tax audit? First of all, don’t panic! While it can feel intimidating, an audit doesn’t automatically mean you’ve done something wrong. Think of it as a way for the IRS to ensure your tax return is accurate. Here’s a friendly step-by-step guide to help you navigate through the audit process smoothly.
1. Read the Audit Notice Carefully
First things first, take a deep breath and read the audit notice thoroughly. It will explain what type of audit it is: a correspondence audit (handled by mail), an office audit (at an IRS office), or a field audit (at your home or business). The notice will also list the documents and information the IRS wants to review.
2. Gather Your Documents
Next, start gathering all the relevant documents. This includes income records like W-2s and 1099s, receipts for deductions, bank statements, and any other supporting evidence. Organize these documents neatly. A well-organized set of documents can make the audit process much smoother.
3. Talk to a Tax Professional
If you haven’t already, now might be a good time to get some professional help. Consider hiring a CPA, tax attorney, or enrolled agent. These professionals can guide you through the audit process, help you prepare the necessary documents, and even represent you during the audit. They can also offer valuable advice and answer any questions you might have.
4. Respond Promptly and Cooperate
When dealing with an audit, it’s important to be timely and cooperative. Respond to the IRS by the deadline mentioned in the audit notice. If you need more time to gather information, don’t hesitate to request an extension. During the audit, be polite and provide clear, concise answers to any questions. Stick to the facts and avoid offering extra information that isn’t requested.
5. Review Your Tax Return
Take some time to review the tax return that’s being audited. Understand the specific issues or discrepancies the IRS is questioning. If you find any errors, be ready to explain them and provide supporting documentation. If you believe your return is accurate, be prepared to defend it with the evidence you’ve collected.
6. Know Your Rights
Remember, you have rights during the audit process. Familiarize yourself with the IRS Taxpayer Bill of Rights, which includes the right to be informed, the right to quality service, the right to pay no more than the correct amount of tax, and the right to appeal an IRS decision, among others. Knowing your rights can help you feel more confident and empowered during the audit.
7. Consider the Outcome
After the audit, the IRS will issue a report detailing their findings. If you agree with the findings, you can sign the report and settle any additional taxes owed. If you disagree, you have the right to appeal the decision. You can present additional documentation or argue your case before the IRS Appeals Office. If necessary, you can take your case to tax court.
Getting audited can be stressful, but understanding the process and knowing how to respond can make it manageable. By staying organized, cooperating with the IRS, seeking professional help, and knowing your rights, you can effectively navigate through an audit. Remember, the goal of the audit is to ensure your tax return is accurate and complete. With the right preparation and a calm approach, you can handle an audit confidently and minimize any additional tax liability.