Everyone’s worst fear has suddenly become your reality: you’ve been audited by the IRS. What do you do now? Read on to learn what to do when you get audited.
Your worst tax fear comes true: you get audited by the IRS. Do you know what to do next?
You might feel like you’re all alone, but you’re not. In 2016, the IRS audited more than a million income tax returns, and that was actually a drop from previous years. In fact, that makes the rate of individual tax return audits just 0.7 percent.
Getting audited sounds scary, but if you know what to do, you won’t need to worry. It can happen to anyone. If it happens to you, you should be prepared – keep reading to learn what you’ll need to know.
Ways You Can Get Audited
Not all audits are the same, and the vast majority of them aren’t even in person.
The truth is, most audits aren’t really a cause for concern. You might have to answer some extra questions from the IRS through the mail, and only in rare cases will you have to meet in person.
Here are all of the different ways an IRS audit can look.
Most tax audits happen via mail. These are called correspondence audits, which happen if the IRS has some questions or needs extra documentation to show that your return is legit.
If you just submit the right paperwork via mail, that’s usually enough to settle things. You won’t need to talk to a representative at all.
In-Office
It’s less common to have to go to an IRS office for an in-person audit. In these cases, the IRS needs more details than you can give over mail.
If you need to do this kind of audit, you’ll probably be asked to bring some specific kinds of documentation to answer their questions. Sometimes, you’ll also need to bring an attorney or accountant to represent you, but this isn’t necessary for every case.
Field
The field audit is the kind that tends to scare people the most. In a field audit, the IRS sends an agent to your workplace or home to do a deeper investigation of your tax return.
If a field audit happens, that means your return raised some serious red flags with the IRS, or they have a lot of questions about your return.
What to Do When You’re Audited
No matter what kind of audit you get, it’s always going to feel a little daunting. Here’s our guide on what to do for every kind of audit.
1. Don’t Panic
When you first receive the audit notice, you might feel scared. However, it’s much better to remain calm and remember that IRS audits are common. As long as you’ve tried to report your taxes with accuracy, things won’t go badly.
If it helps, you can get a tax attorney, CPA, or another professional to represent you. This helps take some of the pressure and worry away. Counseling with a professional can help get your questions answered and eliminate your concerns.
Your first step should be to contact the person who you hired to do your taxes (if you didn’t do them yourself). They’ll have good advice for you.
2. Carefully Read the Notice
Check the audit notice you got and read it through carefully. Most of the time, it won’t be a complete in-person audit, but an audit of your computer documents to make sure everything matches up.
If the audit requests document matching, you’ll likely need to verify specific lines on your tax return for accuracy. The IRS might suggest an adjustment based on the new information you provide.
3. Get Your Documents Ready
When it comes to audits, documentation is crucial to getting through it with no worries.
Make sure to have your well-organized documents ready. These may include W2s, 1099s, canceled checks, and more. Check these documents against the amounts on your tax return so you can use them to verify information as needed.
If you don’t have enough documentation to support a deduction you claimed, your deduction may be denied. However, the information the IRS has might not be right, so it’s worth your time to check it over for mistakes.
No matter what, when you provide corrected information according to what they requested, that should resolve the audit. You might need to pay a bit more in taxes, but at least you’ll have the worry off your shoulders.
If you find more deductions than you originally claimed while checking through your documents, don’t hesitate to send them in your response.
Just keep in mind that the IRS has strict rules regarding documentation for business expenses and charitable donations.
4. Be on Time
If you miss your deadline for submitting additional information, you’ll only make things more difficult. Audits can be serious, and you can get significant fines if you miss your deadlines.
The process only becomes more stressful if the IRS thinks you’re not cooperating. Show them that you want to do things right by doing it all on time, and you won’t have trouble.
5. Don’t Talk Too Much
If you have an in-person audit, you probably feel nervous. And when we’re nervous, we often talk more than usual. However, be careful – the things you say could get you in trouble.
The IRS does a good job of making people feel nervous. Keep in mind that they want to use your money for the government, and the pressure is on you to prove that you should keep more of your own money.
The IRS isn’t on your side – they don’t want you to keep more money.
Avoid letting your guard down when talking to an agent. If possible, have a representative who knows how to deal with the IRS present at your in-person audit to avoid this risk.
Audits Can Happen to Anyone
If you get audited, it doesn’t necessarily mean you’ve done something wrong. It typically just means you need to submit more information.
Still, even if it’s a simple audit, you might feel overwhelmed by the task. It never hurts to hire a CPA or tax professional to help. When you’re looking for representation, contact us to get started!