Most people will file their tax return without any issue. But that doesn’t mean you’ll be immune to a tax audit. If you’re facing extra scrutiny with your return, then it’s important to have a plan of action. Following the right steps can help you get everything sorted out—and put your tax liability back on track.
5 Key Points for Your Audit Strategy
Navigating a tax audit can definitely seem scary at first. Just remember you aren’t alone! There are a handful of reasons why the audit may have been issued. And there are plenty of ways to get the situation resolved without any additional fuss!
1. Identify the reason for the audit
The first step is to understand why you were selected for an audit. While some audits are truly random, there’s probably a specific reason why your return has been flagged. For example, your business expenses might be significantly higher than what the IRS typically expects for your industry or profession. Or they might have some questions about a recent charitable donation that you’re claiming as a deduction. Before the panic sets in, remember to take a breath and focus on what’s actually being asked of you.
2. Determine your audit level
There are different types of audits. Some are more serious than others, and you’ll need to know the timeline and requirements for your response to whatever section is being challenged.
In general, a “correspondence audit” is the easiest one to handle. These are conducted through the mail, and they make up about 70 percent of all audits. The next level up is an “office audit,” which means you’ll have to visit your nearest IRS office in person. If an IRS agent comes directly to you, then you’re dealing with a “field audit.”
3. Know your rights for representation
No matter what type of audit you’re facing, you have the right for your accountant or an attorney to represent you during the audit process, or even appeal the IRS’s decision. You can also reach out to the special Taxpayer Advocate Service to help you work through any problems with the case.
4. Organize the supporting documents
You want to cover all of your bases. Make sure your audit response has all of the right details and documentation to support your claim. Maybe you need receipts to defend why you deducted certain vehicle costs. Or you might need a copy of the confirmation notice for a donation you made. Whatever the case may be, pull together as much information as possible. When in doubt, you can always ask for help!
5. Connect with a tax professional
The tax code is extremely complex, and it’s all too easy to make mistakes during an audit. Asking an experienced professional to guide you through the steps can help you avoid making errors. You don’t need to tackle an audit alone. Sometimes, even the most well-meaning taxpayers end up making the problem worse when they correspond with the IRS directly.
You obviously want to do as much homework as you can upfront. After that, be sure to get another ally on your side. If you’re in the greater Indianapolis area, our team at NSO & Company would be happy to help! Call our office at (317) 588-3131 to let us know what’s on your mind!