They say that the only certainties in life are death and taxes, but despite the inevitability of having to pay your taxes and even when you are diligent with submitting your returns, you can never truly predict when you might be selected for a tax audit.
It could be a random selection process that has helped single you out or an auditor it might be that some of your numbers don’t add up, whatever it is, there are a number of key things you must do when your finances come under scrutiny.
Here is a look at ways for preparing for a tax audit, including some solid reasons why you need to act immediately, and an overview of some typical scenarios when your financial affairs are under the spotlight.
Don’t ignore the tax audit notice
Although it will never be a pleasant experience to receive a notification of a tax audit in the mail the most important thing to remember is that you will not be doing yourself any favors if you ignore the notice or don’t start preparing for what lies ahead.
The notice will generally allow you a period of a few weeks or more to collate all the information they will want to see during the audit process.
Don’t take this period of grace as an invitation to procrastinate as the time will soon come around and it is far better to be prepared in plenty of time rather than being forced to rush around at the last minute.
You may have been assigned an IRS officer to deal with your audit and investigate your financial affairs and this useful site can explain what that means for you.
The main point to remember is that it would not be a wise idea to ignore the tax audit notice as the clock has started ticking and they will be seeking plenty of answers in a short space of time.
Start preparing
The audit notice will normally provide a list of specific information that the tax authorities want to see and it is advisable to start gathering your records together the moment you receive the notice.
Take the time to read through the audit notice several times and write down a checklist of everything they have asked for.
You will typically be given 30 days to respond to the IRS in this situation and a good move before you actually respond and schedule a meeting would be to get in contact with a tax specialist or auditor for some general advice on what to do.
Consider contacting a tax professional to advise you
It is perfectly acceptable to be represented by a tax professional who has plenty of experience and knowledge of how to deal with the IRS during a tax audit.
You have the right to be represented in an audit by an appointed agent and the IRS won’t look on this move with any suspicion. It can be very stressful facing up to an audit on your own, especially if you are unfamiliar with the process, so consider getting some professional help so that you answer all the questions and resolve the matter as quickly as possible.
Some audits might be carried out by mail and sometimes an appointment will be requested to meet you in person.
If you are asked for a face-to-face meeting it would definitely be helpful to bring along your appointed agent so that the questions can be answered in a way that serves your best interests.
Always be polite and respectful
You will probably dislike the fact that you have been selected for a tax audit but it is highly advisable to hide any feelings of anger or resentment as it is not going to help your case.
The IRS has a responsibility to treat every taxpayer with due respect and fairness and the auditor is just doing their job.
If you can keep a lid on your emotions and aim to treat the IRS auditor with the same level of respect that you expect from them in return, it will make the whole process a lot easier and probably a lot less stressful.
Get the balance just right
Another valid point to consider surrounding the tax audit process, in general, is that the best approach is often to be confident with your responses but only provide the information requested.
Work on the basis that it was your understanding that the tax return you submitted was correct at the time of filing and your records will support this assertion.
Starting the negotiations from this point will enable you to provide a balanced response with your answers, not avoiding or withholding details, but not elaborating when it is not necessary.
It should not be automatically assumed that an additional tax bill will be forthcoming as a result of the audit. The process is designed to be a fact-finding mission and a way of clarifying details you have provided to the IRS in your submissions.
It is not uncommon for the IRS to accept your return as correct after the audit, so it is better to be confident in what you are saying and see where that takes you in your negotiations.
Know your rights
Finally, it is important to know what your rights are as a taxpayer and get acquainted with the rules of engagement, which will help you deal with an audit with a greater degree of certainty about how you will be treated and what options you have if you disagree with what is being said about your tax affairs.
If it is asserted that you owe further taxes after the audit, you will be asked to sign a document that confirms you agree with the proposed changes to your tax return.
You still have the option to disagree with the changes and file an appeal. This is one reason why it might pay to use an advisor to help you through the entire tax audit process.
Image source: Pixabay
