If you’ve ever received an audit letter from the IRS, you know the scary feeling that usually follows. It may feel as though they are calling you into the principal’s office, but with much weightier consequences.
If you’re being audited, don’t worry; we’ve got you covered. Take a deep breath, and read on.
Related: What an Audit Could Mean For Your Business
Why am I Being Audited?
There’s only a very small chance that you will receive an audit if you file your tax return correctly with sufficient, accurate information. More than 99 percent of tax returns go unaudited. Audits are usually a result of red flags that arose as the IRS reviewed your return, and may take a while to show up. The IRS has a three-year period from the time that you file in which they may conduct an audit. Often the IRS simply needs to verify that the information on your return was correct. Rarely is an audit a huge, scary investigation.
Typical deductions or exemptions that may be more likely to trigger red flags include:
- Previous tax return issues
- An unusually large number of itemized deductions
- Inaccurate reporting on your W2 or 1099 form
- Very large charitable donations
These are some common issues that may result in an audit, though not everyone who claims these items will get one. It really depends on your specific return.
So What Do I Do?
1. Be Prompt
You should respond to your audit letter promptly. Ignoring it will start the audit off on the wrong foot, and could land you in hot water. If you don’t feel comfortable working with your auditor, your accountant may be able to handle the process for you.
2. Ask Why You Are Being Audited
Knowing exactly why you are being audited will help you know which documents to have on hand for your audit. Though the IRS usually tells you this in your audit letter, it’s always good policy to ask, as sometimes the auditor will be able to explain it better than the letter might.
3. Ask How You Are Being Audited
Did you know there are different types of audits that they may conduct? Depending on what information the IRS needs, they may conduct your audit via mail, at your local IRS office, or at your place of business. You may request a change of location if your audit type poses a severe inconvenience, though the request will not always be granted.
4. Tell Your Accountant
Let your accountant know as soon as you find out that you are receiving an audit. They may be able to help identify the reason for the audit, and they will be able to assist you in gathering the necessary documents for the audit. They can also advise you whether you may need to hire a tax lawyer for your audit.
5. Request an Extension
When you receive your audit letter, you will receive a date that the audit must have completion by. If it’s been a couple years since you filed the return, you may need more time to gather your documents. That’s OK — you can request an extension. Let your auditor know which documents you still need time to recover, as you may be able to go ahead and begin the audit even without those records.
Related: Which Records Should I Save and When Can I Destroy Them?
For more information about audits or for help preparing your taxes, give Hacker Accounting a call at 602-375-5251.