Keeping Your Books Straight

4 Ways To Prepare For A Tax Audit

A tax audit by the IRS is stressful, but it doesn't have to be a nightmare. If you are prepared and working with an audit professional, things are much more likely to go smoothly and quickly. 

1. Start a Correspondence File

The IRS will send all correspondence in regards to your audit via US mail. They will not call you, although in some cases you can call them back instead of responding by mail. Create a file that contains the original copies of any mail received from the IRS and copies of anything you mail to them. Further, maintain a call log detailing date, the person you spoke to, and the subject if you do call the IRS. Your tax professional may require this information to prepare for the audit. 

2. Collect Necessary Documentation

The audit notification will include the tax years for which you are being audited. You will need to gather all documentation from these years and organize it prior to the audit. This includes all annual tax filings and associated schedules, receipts, income statements, expense reports, bank and investments statements, and anything else pertaining to your personal or business tax dealings. 

3. Document Missing Information 

In the event some documentation has been lost, you will need to do your best to recreate it. The best option is to track down the issuer of the document, such as a vendor, and see if they have copies of the document or can at least write a letter confirming the transaction. If there is no way to recreate the original in this manner, then you must create a list of missing documentation and include the reason why it is missing (for example, water damage to records or simply a lost receipt). This is to show that the information isn't being left out on purpose. 

4. Locate Possible Triggers

Certain things trigger an audit, and you may not be informed of the trigger. Your tax audit professional can help you comb through your records to identify the possible audit triggers so you can be prepared to address them during the audit meeting with the IRS. Examples of common triggers for an audit include but aren't limited to under-reported winnings or income, high business losses, high deduction amounts, math errors on a return, and offshore business assets. 

Contact a tax professional for IRS auditing assistance if you have received an audit notice in the mail.