What You Should Know If You’re Being Audited

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Receiving an audit notice from the IRS can be an alarming experience. Receipts, a lifetime’s transactions, bank accounts, and your entire financial history seems to flash before your eyes as you scurry around in a financial frenzy. But what many taxpayers don’t know, is that an IRS audit doesn’t have to be a financial drama if you keep your wits about you. We’ve come up with 5 tips you need to know if you find yourself or your small business being audited. 

1. Time is of the essence

Anytime you’re dealing with the IRS, time is of the essence. Responding in a timely manner should always be your first step when encountering issues regarding taxes and financial audits. Failing to respond quickly (or even at all) could result in owing more taxes and spiraling into continuing financial trouble. So first thing’s first: take action immediately!

When the IRS decides to do an audit, it doesn’t necessarily mean you’ve done something wrong. And even if you have, there’s always a fix. It’s inevitable that taxpayers will make mistakes when filing their taxes. Whether you’re a first-time filer or still trying to unravel this complicated system, keep in mind that it’s not the end of the world if you get audited by the IRS. So before you start to panic, follow our next step.

2. Identify the root of the problem

Finding out why the IRS is initiating an audit will help you prepare your financial documents and even give you the opportunity to do some financial sleuthing of your own.

Here are some common reasons the IRS audits taxpayers:

• Failing to report income: If you got a part-time summer job and the business filed form 1099 for you, but you did not report this extra income, you may expect to be audited.
• Making math errors: The IRS doesn’t really let these fly, even if you struggled through your high school algebra course. Play close attention to your calculations when filing your taxes or better yet, consult a tax professional to help you file correctly.
• Claiming too many charitable donations: If the IRS is unsure about the amount of charitable donations you’ve actually made this year, they will likely perform an audit to make sure everything checks out. When claiming a charitable donation, make sure you have all of the proper documentation to claim your donation appropriately.
• Using unlikely numbers: Your filing numbers probably won’t be in clean, consistent intervals of $100. Between different incomes and deductions, the math is likely going to be a bit more complex than that. When filing your taxes, round to the nearest dollar not the nearest hundred to avoid any potential red flags.

If there is a specific reason the IRS is choosing to audit you, they will likely provide their reasoning on the notification you received. Keep in mind, the IRS sometimes audits people at random. The IRS will notify you via mail if they are going to conduct an audit. The IRS will not notify you of an audit over the phone. Whatever the reason is for the audit, you’ll need to get the appropriate forms together so that you’re prepared with the right information.

3. Stay calm and get organized

When preparing for an IRS audit, act under the assumption that the IRS does not have any access to your documents. Even if they do have all of the information they need, you’ll want to make the process as easy as possible by gathering all of the appropriate documentation together yourself. Use a cloud-based storage solution to keep all of your documents in order from tax season to beyond! So what should you get together?

Include these financial documents and any other applicable information when prepping for an audit:

• Tax return(s)
• Copies of your W2 and other income reports
• Business receipts
• Receipts from charitable donations
• Supporting documents for any claimed deductibles

4. Find a tax professional to help

Filing taxes is already complicated enough for most taxpayers— but add an IRS audit into the mix and you’re playing a whole new game. Getting tax audit help can relieve some of the stress of going through an audit, and help you ensure that you’re responding to it appropriately.

If the situation is serious enough, you may want to consider hiring a tax attorney to help you navigate the legal process and represent you in front of the IRS.

5. In conclusion: plan for success

When talking about finances and taxes, planning ahead is super important. If you want to avoid potential issues with the IRS, make sure to stay on top of your taxes before you find yourself in IRS drama. Filing your taxes on time, using a budgeting app, and recording your tax info are some great ways you can stay ahead and out of trouble.