Nothing strikes fear as much as the word “tax audit.” If the IRS has contacted you, take a breath, and prepare your tax defense. You can take specific steps to prepare for an audit.
In 2019 alone, the IRS audited over 770,000 tax returns. You’re not alone in your suffering. When the IRS takes the offense, you can assume a defensive stance.
Keep reading to learn the best tax defense strategies.
Use a Tax Defense Professional
An IRS audit is an offensive assault on your finances. You need to have professional defensive techniques.
Your best tax defense strategy lies in seeking professional help. Do not attempt to defend yourself alone. Rather, contact a tax attorney.
If you doubt the need for a professional, read the tax code. It comes across much like a foreign language. Tax attorneys understand the code inside and out and will help with audit preparations.
Pull Yourself Together
After contacting a professional, you need to organize your records. You should have a primary records file and a secondary records file. Primary records include bills and receipts while secondary records include mileage logs, spreadsheets, and summary information.
You should also have all tax returns from the past three years handy.
Having your information organized will help your tax audit go smoothly and ultimately alleviate your stress.
If you haven’t kept accurate records for the tax year in question, try to recreate your records as accurately as you can. For example, if you claimed medical expenses, contact the hospital or clinic to see if they still have medical records on file.
If you need a new W-2 or 1099, ask your employer for a duplicate. Format all the documents neatly, summarize them with proper documentation and then take them to the audit.
Begin to do some homework on how an audit works. Contact friends or business associates who have gone through an audit. They can best tell you what documents you may need and how the process works.
The more you know about the protocol before and during the audit, the less stress you will have. You can go into the audit with some audit strategies in mind.
Know Your Boundaries
Head into the audit with a couple of thoughts in mind. First, remember the auditor is doing his job by looking at your finances. He’s not your friend.
So focus on behaving professionally. Do not act defensively, but do not engage in an overly friendly conversation either. Just give the auditor what they ask for.
Winning the Audit
Your best tax defense in the audit game requires you to hire a professional and then prepare your documents. Once you know what to do after talking to someone who has been through an audit, you will find your stress greatly reduced.
Furthermore, remember that sometimes the IRS does not find an error in their favor. Some IRS audits result in the IRS owing you. So if you have all of your documents ready and go in with a professional attitude, the auditor may find something in your favor.