The dreaded tax audit. It conjures up images of combing through archives of receipts and tax records to plead your case… but is it really that bad? In this article, we’ll look at why you might be audited, and what to do if you are.
First, let’s talk about your chances of being audited. Less than 1% of the population is audited each year. But that’s still more than one million taxpayers each year. And your chances of being audited are lower if you’re well-off (because it’s harder for the IRS to audit those with a lot of money). That’s uplifting, right?
So what triggers an audit, and what should you do when one happens to you? Let’s find out.
Step 1: Stay Calm
If someone calls you and says you owe a ton of back taxes and you need to give them your bank account info or go to jail, you are being scammed. Don’t fall for it. Your audit notice will come as a letter from the IRS. If that happens, the first step is to stay calm. An audit isn’t an accusation of criminal activity, just of poor accounting.
Many audits can be resolved simply by providing the correct paperwork. The IRS just wants to clear up discrepancies or accounting errors, and all you need to do is provide the proper papertrail to prove your payments were on point (or to confirm that they weren’t, and to pay what you owe).
Step 2: Take Action
Once contacted, you’ll generally have 30 days to respond to an audit notice. That may seem like a lot of time, but don’t take it for granted. Your audit notice will include specific information about what triggered the audit, and what documents you may need to provide further information.
Start getting those documents together right away. If you owe money to the IRS, every day you go without paying it could add interest onto your debt. Be sure to make and provide copies of the requested documents (unless they specifically request the originals, keep those for yourself). As you gather your evidence, determine if you want to bring in qualified experts to help navigate your audit process.
Step 3: Make Your Case
Most audits can be cleared up purely through conventional mail. But some require an in-person appointment. This will take place either at your home or an IRS office. Be sure to attend on time, and remain polite and professional throughout—there’s no need to add to your stress during this process! You can attend alone, or bring a certified public accountant or other representative with you.
Be sure to bring all your assembled paperwork, but only show the IRS agent the documents they specifically request. They’ll know what they need to see, and it’ll make the whole process easier if you follow their lead.
Step 4: After the Audit
At the end of your audit process, you’ll end up in one of three situations: either you’ll prove that you don’t owe any money, you’ll come to an agreement on additional charges, or you’ll face additional charges that you don’t agree with.
If you’re in the first camp—congratulations! Go have a nice meal and enjoy a relaxing, stress-free evening.
If you find that you owe additional money to the IRS and agree with the findings, you’ll need to come up with a payment and work promptly to avoid incurring additional interest on your debt. If the amount is more than you can afford, you can request an extension or set up a recurring payment plan to spread out the cost over time.
If you disagree with the results of the audit, it’s time to start your appeal process. You’ll want to gather additional information, and strongly consider enlisting extra help from a qualified professional as you dig in for round two of your audit battle.
Hopefully you never face a tax audit, but if you do, we hope this guide is helpful. Just remember that the experts at SL Tax are always ready to help if you need it!