Being audited can be intimidating, but the truth is it’s often innocent mistakes that landed you in this situation—that doesn’t make it any less convenient. If it’s your first time being audited, you’re likely confused about next financial steps. There are measures you can take to make the process as painless as possible. Read on for tips on what to do if you’re being audited.
Get Professional Help
First and foremost, get professional tax audit help. As much as you think you know about doing your taxes, something you did got you into this situation in the first place! As this Entrepreneur.com article notes, “A pro will have a much better understanding of tax law and the audit process and can coach you on what to say and do.” The money you spend on this person will be well worth it—especially if the IRS is claiming you owe many thousands of dollars.
Hold Off on Your Tax Return During an Audit
If you get notice of the audit when you’re about to file a new tax return, hold off on that and instead ask for an extension. If you don’t, the audit could expand to include new information, which could work against you in the long run.
Get Hard Copies
Whereas the trend in just about everything else is to go paperless, in this instance you’ll need a paper trail. Print out all statements as they become available, as the IRS doesn’t deal with electronic files during an audit. Nail down exactly what is being audited. As this article from FoxBusiness.com notes, “If you are being audited because you wrote off 100% of your car usage as a business expense, get your mileage log and other evidence that the car was used only for business purposes all in one place.” In the event you don’t have the proper documentation, the article notes that there some instances in which a third party can verify the accuracy of the claim. Again, your tax pro can help you navigate circumstances like this.
Learn How to Interact with the IRS Agent
As much as you might be tempted to tell an agent off, this will only make things worse. Be kind, courteous, and helpful. At the same time, don’t offer information that hasn’t been requested, as each bit of documentation your offer is another chance for them to reveal more errors
Do Your Due Diligence
Read up on this subject as much as possible, even if you do have a professional helping you. The IRS website has particularly helpful resources that will not only help you with your current audit, but will teach you how to avoid them in the future. Trust us—when you’re done with this one, you’ll want to avoid another at all costs! According to this article from NerdWallet.com, the seven most common reasons you’ll get audited are as follows: math errors, failing to report all of your income, claiming an excess of charitable donations, reporting too many losses on what’s known as a Schedule C, claiming too many expenses for your business, being too loose with your claim of a home office deduction, and using numbers that come out far too “nice” and “neat”. In addition, your annual income becomes a bit of a Catch 22, as the more you make, the more likely you are to be audited. As president of Surevest Wealth Management notes via the FoxBusiness.com article, “There is an overall 1% chance of getting audited.” This same article goes on to note that “for those bringing home more than $200,000 in 2013, their chances jump to 3.26% and 10.85% for those making more than a $1 million.”
So, you’ve been audited. Don’t panic! This is a marathon—not a sprint. Be patient, get help, follow these tips, and it will all be over soon enough.