Friday, December 18, 2009

Surviving an IRS Audit with Minimal Losses

There is nothing more frightening to a taxpayer than checking your mail and seeing a letter from the IRS letting you know that you are being audited. Fortunately, if you follow a few basic tips, you will find that an audit does not need to be as scary as you might think.

1. Always be Prepared

The best way to survive an IRS audit is to always be prepared for one. You never know when the IRS is going to send you a letter informing you of an audit, so it is a good idea to always file an honest tax return. Gather and retain receipts of all claimed expenses and deductions. And hold onto all of your tax records and important financial documents for at least 6 years.

2. Do not Ignore the Problem

When you get an audit letter from the IRS, it is important that you do not just ignore the problem. You will generally have 30 days to respond to the letter, otherwise the IRS can take drastic actions such as adjusting your total tax liability. If they find you owe them more money, then the IRS will send you a notice regarding the back taxes owed and will begin collection activity.

3. Organize Documents in Advance

The IRS’s letter should include a list of items they would like to see such as canceled checks, receipts, bank statements, etc. Before the actual audit, you should go through the list and collect documentation of everything the IRS is requesting.

4. Get any Documentation you Might be Missing

If you find out that you are missing an important document the IRS auditor wants to see, then it is a good idea to get extra copies ahead of time. You can contact your bank and credit card company to get copies of statements or receipts. It is important to bring all of the documentation that has been requested when you show up for the audit. If you do not, then odds are you will see your tax liability increase.

5. Bring Only what is Required

You should only bring documents to your audit that the IRS has asked for. If the IRS did not ask you to verify your home office or a business expense, then that means you do not need to worry about it. There is no need to overwhelm the auditor with unrelated receipts or documents, as this could only lead to additional questions.

6. Make Copies, and Keep the Originals

Before the audit, you should stop by an office store or Kinko’s and make copies of all of your documentation to give to the auditor. You should make absolutely sure that you keep all of the original copies in your file cabinet in case you ever need them again in the future.

7. Be Nice & Friendly

During the audit, you want to make sure that you are nice and friendly to the auditor. No one likes paying taxes and everyone hates being audited. However, being rude to the IRS representative will do nothing positive for your case.

8. Admit your Mistakes

Everyone makes mistakes and tax returns are no exception. It is always hard to admit a mistake, but when you are faced with evidence from the IRS auditor, it is in your best interest to acknowledge the error as opposed to arguing with the representative.

9. Get Help if Needed

If you are worried about facing the IRS on your own, or feel like your finances are over your head, then you might want to enlist help from a CPA or qualified tax professional. Just make sure that you find someone who is experienced in dealing with IRS audits.

10. Know your Rights

Although an IRS audit can be very intimidating, you should not let the auditor walk all over you. Taxpayers have a specific set of rights when it comes to audits, such as the right to decide when and where it will tax place. For a full list of your audit rights checkout this page on

Blog Archive