Do not lie or make misleading statements: The IRS may ask questions they already know the answers to in order to see how much they can trust you.
It is best to be completely honest, but do not ramble and say anything more than is required. Stick to the required documents and keep it simple. CBS News explains your options :.
You can choose to attend and handle the audit by yourself, hire a tax professional to go with you or hire a tax pro go in your place. Fox Business points out a couple of additional advantages to hiring a professional. A professional is also more familiar with the tax code, which comes in handy if your auditor makes a mistake. You may feel at the mercy of your auditor, but you still have rights as a taxpayer, according to the Taxpayer Bill of Rights PDF.
Some highlights that might help you during the audit process include:. The Right to Be Informed : Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence.
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They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes. Taxpayers generally have the right to take their cases to court. The Right to Retain Representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation. If you get a correspondence audit, in some cases, the IRS will just tell you how much of your return is adjusted.
As law site USLegal. You have to send a written letter of your appeal within 60 days of the notice. If there are no changes, the report will tell you that, too. If there are changes, you have two options. You can agree with the findings, then sign the report or form. If you owe money, the IRS offers several different payment options. If you want to appeal, the IRS outlines the process here. You will, however, have to fork over interest during the appeal period for any finalized payments.
Open kinja-labs. Contributing writer, Lifehacker. The A. Share This Story. About the author Kristin Wong.
Kristin Wong Contributing writer, Lifehacker. Email Twitter Posts. Club TV Club. One concern that inevitably creeps into many taxpayers' minds is the possibility of being audited by the IRS. A tax audit is an examination of an organization's or individual's tax return to verify that financial information is being reported correctly.
What triggers an audit?
While the chances of being singled out for closer scrutiny are statistically low, there are factors that could increase your odds of receiving an audit notice. Fortunately, there are measures you can take now to minimize future problems. A variety of potential "triggers" in tax returns tend to raise questions and attract unwanted attention from the IRS. The IRS uses a computer scoring system, called the Discriminant Information Function DIF system, which analyzes tax deductions, compares taxpayer data, and is often the basis for initiating an audit.
According to TurboTax , issues can crop up when income is not fully reported or business operating losses are considered out of the ordinary. Other audit triggers may include errors or inconsistencies in the return, omissions, lavish business-expense deductions for meals and entertainment, and a sharp drop in reported income from one year to the next.
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Exceptionally large charitable deductions can sometimes trigger an IRS audit, but they're usually allowed when a taxpayer has receipts and documentation to back them up. Another item likely to prompt the IRS to dig deeper is having money in a foreign bank account. Examiners also pay closer attention to cash-intensive businesses such as restaurants and convenience stores, which generate a lot of cash receipts from smaller transactions. How to Handle It Like a Pro ]. Although most business owners and other taxpayers cringe at the idea of having to defend their tax return in an IRS audit, there's usually little reason to worry.
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The remaining While nearly 1. Scott Berger, a CPA and principal at the Boca Raton, Florida, office of Kaufman Rossin , said the IRS is moving more toward correspondence audits, which can impact individual taxpayers, small businesses and sole proprietorships.
With this type of audit, the taxpayer receives a notice from the IRS saying that the agency is examining a tax return and has questions about specific line items. The purpose of the notification is usually to request supporting documentation for the line items being questioned. Berger said one of the best ways to reduce your chances of being audited is to keep detailed records. This also helps ensure that if you are questioned by the IRS, you'll be able to substantiate deductions, income and other information. He recommended organizing bookkeeping systems to create a clear and accurate record of all transactions, as well as maintaining and preserving the source documents used for accounting and tax preparation.
With the assistance of a knowledgeable bookkeeper or tax preparer, "issues will be vetted before [they're] presented on a tax return," Berger said. Accounting and bookkeeping professionals can also help substantiate and validate information reported to the IRS, he added.