5 Things to Pass a Tax Audit

What is TAX Audit? Tax auditTax audit is a very stressful time for the small business owners, thereby adding fear to the big list of entrepreneurial challenges. Tax audit is formal examination the IRS conducts to verify information or to uncover any frauds as well as inaccurate tax returns. The IRS selects the tax returns to examine intentionally or randomly.

Fight the Urge to Panic When you receive the audit notice, you might feel as if the IRS is out to catch you. However, the in-depth audits are rare. The common audits nowadays are correspondence audits that makes up for 0.7% of all audits for the fiscal year. Field audits take place at your business or accountant’s office. It involves hours of review. But if your documents are clean, you have nothing to worry. However, the IRS has faced years of personal reductions and budget cuts.

Gather Necessary Documents If you get selected by the IRS, they send you a written request for the specific documents they wish to see. It might include cancelled checks, receipts, bills and other legal documents. You must take sometime to gather these documents and reports. Now, the best defence is a good offense so you must keep detailed, organized records that would keep you in a good position and help the auditor get what he needs.

Look for Additional Deductions If you have accidentally forgotten to include revenues on the return claimed deductions for it were not eligible, the IRS would assess the additional tax due as well as interest from the date you have paid the tax as well as the penalties. However, before the auditor closes this file, ensure you don’t miss the deductions that might offset the increase in the taxable income. Most of the tax payers overlook deductions, home office expenses, charitable contributions, etc. You must take time to review it.

Substantiate Your Deductions You might not be an expert in maintaining the records during the year of audit. Even if you are missing out on the records and receipts, the deductions don’t need to be forgotten. In many cases, the IRS allows for third-party documentations, oral testimony as well as other type of verifications to substantiate your expenses. If you are missing receipts of other expenses, you can get another copy from the vendor.

Seek Professional Help If you don’t feel too confident managing documents and receipts yourself or your spending, hiring a CPA would actually be of a lot of help. The professionals would be able to streamline your expenses, thereby maintaining a proper record of it. Hiring an attorney does cost money, but it would relive you from handling all requests for documentations. Also, the professionals are experts in dealing with tax and audit laws. In case of field audit, the auditor would set up an initial meeting where they would ask you or your representative questions.

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