Tax season is a very busy and stressful time, but it’s necessary to prepare for it to avoid any problems with the Internal Revenue Service (IRS). The IRS has the jurisdiction to start a tax review for your tax returns, whether it’s for a business you own or for your personal tax returns. The purpose behind a tax audit is to double-check your deductions, income, refunds, transfers, and any type of payment thoroughly. Read on to learn about the important steps to take in order to prepare for a tax audit.
Understanding the Type of Audit
Some types of audits are simpler than others, even though they are all alarming for the taxpayer. If you receive a correspondence audit in the mail, the letter will ask you to send them additional documentation for proofing, error correction, and verification. It will always be an official letter from the IRS and any phone calls or emails that order you to pay what you owe is most likely a scam.
An office audit is when the letter asks you to bring your documentation, receipts, and any payment slips to your local IRS office branch for an auditor to review your case. The process may take three to 6 months to finish and the auditor will give you instructions on what to do with the adjustments they need. Never offer to host an IRS agent if they don’t ask for it.
The last type is the hardest one, and it’s the field audit that can take years to finish. An IRS agent will come to you for a home or business office visit. It’s a complex audit, and you must prepare all the necessary records, documents, and previous years’ tax returns. Consider repairing/reconstructing old records for verification.
Postpone the Audit
A tax audit can make anyone fear for their livelihoods and, in some cases, asking for an extension might be in your best interests. The legal matters involved with audits are too hectic for you to handle alone. That’s why tax defense attorneys advise taxpayers to look into getting an audit defense that works well with their negotiations with the IRS. That way, they will have a better chance of getting the audit postponed to prepare the important documents and previous tax returns that the IRS will request.
Manage Your Expectations
Taxpayers must manage their expectations because no one gets out of an audit process without paying a certain amount of money. The key is to negotiate and not escalate the matter to a tax court because the process will take years. The courts should be the last resort as an appeal because years of problems with the IRS isn’t good for your finances and revenues. Negotiate the best deal, pay the penalties, and move on with minimal liability issues.
Tax audits may happen randomly or if the IRS detects any irregularities in your submitted paperwork during tax season. The process will start if the numbers you reported didn’t add up, if there is missing documentation, or if a computer program flags abnormal results with your tax returns. Overall, the process is stressful, but it can be manageable if you follow the steps listed above. If you’ve done nothing wrong and the irregularities are just a coincidence or a mistake, then you have nothing to worry about.