Three Tips to Prepare for a Tax Audit
Tax audits are not uncommon. The Internal Revenue Service (IRS) conducted one million audits in 2017 alone. The agency generally conducts these tax audits either through mailings or with an agent showing up at your home or place of business. The agency conducted the vast majority of the one million audits from 2017, approximately 75%, through the use of mailing correspondences. The agency conducted the remaining audits on site with the use of field agents.
What can I do to ease the process?
These tips can help:
- Organize. The IRS will want to review your tax documents. Prepare by organizing W-2s, bank statements, retirement account information and the like. If the audit is for a small business, you may also need to prepare copies of statements to back up any reported business losses or expenses.
- Delegate. Taxpayers have the right to seek counsel to help better ensure their legal rights are protected throughout the audit process. If you are concerned you may have a serious mistake on your returns, such as missed income or a failure to report foreign assets, it is likely wise to seek legal counsel.
- Fight. Taxpayers can contest an audit report if they disagree with its findings. This can lead to additional review and, depending on the details of the case, a courtroom battle.
If the audit leads to a high tax bill, it is important to note that options are available. The taxpayer may qualify for an installment plan or offer in compromise to make the payments more manageable.
