University Of Stirling Dementia Design Audit Tool

What to Do If You're Being Audited

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You've gotten the dreaded notice from the IRS. The government has chosen your file for an audit. Now what?

Audits are most people's worst nightmare. It's a giant hassle and you have to produce a ton of documentation to prove your various income and deduction entries.

Don't panic, though. Many people have been audited and have made it through just fine. Here's what to do if you're in that situation yourself.

Read Your Audit Notice Carefully

Not every audit request is a full in-person comprehensive process. Sometimes, the IRS simply wants confirmation of one or more elements of your tax return.

It's possible that what you reported does not match the records the IRS has from other sources. There's no reason to overreact. Simply provide the documentation you have to support your filing.

If you did make a mistake, the IRS will propose an adjustment. You can accept the adjustment and move forward from there.

Get the Documentation You Need

Depending on what lines you need to confirm, you might need specific forms. Items like your W-2, 1099 income forms and investment reports will help you make your case.

Remember, the IRS isn't always correct. Sometimes it makes assumptions that are incorrect, or it misconstrues specific documentation. Sometimes an audit actually helps; you might uncover additional deductions you forgot to report, and your return may be more favorable.

Get Professional Backup

If you are being audited in person, or you have questions or concerns about the IRS' approach, consult a tax professional. You don't want to face the IRS alone and feel intimidated. Find a CPA or accountant who has experience with audits.

When you have a professional on your side, you'll feel a lot more confident. Between that and your documentation, you can get the best possible outcome from your audit.

Handling a Business Audit

A business audit is similar to a personal audit, but it can have some different complexities. You definitely want professional help, such as audit consulting firms.

Having regular internal audits can help prevent an IRS audit. You'll need internal audit training for your staff, and you might want a sample internal audit checklist so people know what to expect.

If the IRS comes knocking, expect to spend a lot of time producing the documentation you need. The tips for personal audits apply to you as well. You just might have additional resources, such as specialized audit tools for healthcare if you run a health-related business.

Don't Make Silly Mistakes

An IRS agent is responsible for making sure that every dollar of taxes you owe is paid to the government. That includes in situations outside the actual audit request.

As a result, it's important to stay focused. Don't volunteer additional information. There's no reason to hand over previous tax returns and open up additional questions. Instead, provide exactly what's needed for the concern at hand.

If you feel that the IRS agent didn't give you a fair hearing, you have the right to appeal. Appeals officers may be more favorable and less rigid as they review your case.

Avoid Audits With Thorough Tax Returns

Many people do their own taxes to save money, not realizing that mistakes can be terribly expensive. An audit almost always ends in the IRS' favor, with 75 percent of audited taxpayers owing more than their original filing.

Hiring an accountant or using a computerized tax return program can help you provide a thorough tax return without any red flags. This can help you avoid being audited in the first place, which is always the best outcome.