Preparing for an IRS audit
Most California residents do not get much of a warning before being audited by the IRS. According to Time Money, less than 1 percent of taxpayers were audited in a single year, so even when the warning does come most people do not know how to react.
Know the risks
Taxpayers may want to figure out their risk for being audited. For example, people with a reported income of $10 million or more may be more likely to be audited by the government. When someone is aware they have a higher chance of being evaluated, they may be able to better prepare for the potential tax examination. A person could be more likely to be inspected if they filed international tax returns, claimed no income or filed a large estate tax return. Of course, the IRS may randomly audit individuals and businesses as well as those who fit into the usual categories.
Keep good records
A tax audit can go back as far as three years, which means taxpayers need to keep detailed records for at least that long. What type of documents should be saved? Anything that was used to file a tax return, such as a W-2 reimbursement statement, should be kept. It could be prudent to keep other documents, including the following:
- Medical records
- Travel logs
- Loan agreements
If the IRS does request this type of information, the person being audited should be sure to only send in copies of their official documents. The auditor may also be looking for circumstances that surrounded the documents. For example, taxpayers may want to create a transaction summary statement to send along with any business receipts or other records.
Getting ready for an audit, whether it’s hypothetical or definite, can be challenging. This is especially true for business owners whose tax returns may be more complicated than the average person’s. Getting help from a tax specialist can ensure the right documents are used and sent in. Having representation may guarantee a person is aware of his or her rights during the process. For example, anyone being audited has a right to courteous treatment by the IRS agent, confidentiality about income and attempt an appeal of disagreeable rulings.
Not only can working with a tax advisor make the auditing process go smoothly, but it can also help make sure the taxpayer has nothing to worry about during the review. For example, if all returns were done correctly, the audit should end in no change rather than any additional fees.
Even though tax audits are not really that common, New York residents may benefit from remaining vigilant to the potential of an assessment. When a person has to deal with tax penalties, a knowledgeable lawyer may be able to help.