Less than 1% of tax filings each year will go on to be audited by the IRS. If you find that this year you’ve fallen into this unfortunate percentage, try to relax and realize there are steps that can be taken for this to go as painlessly as possible.
So grab a paper bag, take a few deep breaths, and hang in there with us. We’re going to go over some important next steps on what to do when you’re being audited by the IRS.
What to Know About Being Audited by the IRS
Before diving into these next steps it’s important to get your mind right of what it means to be audited by the IRS. Yes, it’s scary, and for many people, it can be their worst nightmare. However, not every audit can turn into terrible repercussions.
In fact, some audits occur simply because some inconsistencies have arrived, and could be the result of a simple error. Try not to go into your audit feeling like you’ve already done something wrong.
It could be that there’s a simple problem with a simple solution and the audit can actually be an opportunity to get your taxes in order.
Carefully Read Your Notice
Chances are you received the notice of your audit through the mail. Stop and take a moment to carefully look at the details within your audit note.
There are different types of audits that occur depending on the situation. By paying attention to the language that’s used in your audit notice you can usually get a grasp on what type of audit is occurring.
For example, if you’re being asked to verify specific lines on a return it could mean that a document matching audit is occurring.
This may mean that the IRS will simply propose an adjustment based on the new information that’s provided.
Gather the Necessary Documents
When it comes to your taxes, documentation is the most important key in any audit. By providing clear and organized documents you’ll find that the audit is likely to go much more smoothly.
Look for forms such as 1099s, k-1f, and W-2s. You may also need to find any canceled checks that may have been claimed despite being canceled.
Consider the IRS to be like any other business. Sometimes information is not received or processed correctly. This means the error could actually be on their side, and by simply providing the correct information the solution can easily be found.
Watch What You Say
If there’s one thing the IRS is good at it’s making people feel nervous and anxious throughout the audit process. This is not a coincidence.
The IRS is aware that the more nervous you are the more likely you are to disclose information that could lead to drastic consequences.
It’s important to remember that the IRS is designed for money to go towards the government not to help you find money to keep for yourself. Which means not letting your guard down to say things that can turn around and harm you in the long run.
If you’re concerned about how to go about the process or what to say, it may be wise to have a representative work on your behalf.
Have a CPA with You During an In-Person Audit
In the event that your audit is in person, it may be wise to have a tax professional at your side to help guide you through the facts.
The IRS is not above trying to intimidate you to sit through the audit process alone. This is due to the fact that it’s unlikely that you know the rules and regulations.
A tax professional that has experience with audits can help lay out the lines to avoid any fishing that the agent may be doing in order to expose you.
Speak up and Even Negotiate
Many taxpayers are unaware that the IRS is sometimes willing to negotiate the amount of taxes that may be due. In the end, the IRS is about getting the money that’s owed to them, which means you may be able to make certain changes to avoid larger debts.
Again, this will greatly depend on the type of tax agent that’s performing the audit. Some agents will be more willing to work with you, while others may be more nitpicky and less willing to go off script.
If you feel that the audit is out of place, you can always present the case to an appeals agent who may also be willing to negotiate the situation further.
Pay What You Owe as Soon as Possible
Like most people being audited, chances are you want the situation done as quickly as possible. The sooner you pay what is owed the sooner you’ll be out of hot water. Remember, taxes do come with late fees and penalties.
Which means not paying the balance as quickly as possible, can land you in an endless cycle that makes it almost impossible to catch up.
Making the Right Move During Your Audit
When you are being audited by the IRS, the entire process can be so overwhelming that it can be difficult to determine what’s the correct first step to take.
If you’re not entirely sure how it even got to this point, or what your options may be, then it’s time to contact a tax professional that can guide you through the legalities of the process.
If you need help navigating through your audit, contact us today for more information on how we can be of assistance.
