IRS audits can be a daunting experience, especially if you have never been through one before. Tax audits can happen at random or due to discrepancies in your tax returns.
When you receive an audit notice, carefully read it to determine the type of audit and the specific issues the IRS wants to address. Understanding how to navigate these audits is an important part of resolving them with minimal cost and time involved.
Gather all relevant documentation
Collecting and organizing your financial documents is the first step toward a response to the audit notice. This includes tax returns, bank statements, receipts and any other records related to your income and deductions. Having these documents readily available will make the audit process smoother.
It is easy to assume your tax return is small enough or simple enough to avoid an audit, but that is not true. Between 2020 and 2022, the IRS audited an average of 12.7 tax returns out of every 1,000 filed by the lowest-income wage earners. Anyone can receive an audit notice, so you need to keep careful records of your personal finances.
Seek professional guidance
Time is of the essence when dealing with IRS audits. Respond to any IRS correspondence promptly, whether it is an initial audit notice or a request for additional information. Failure to respond in a timely manner can lead to further complications.
Tax professionals, such as certified public accountants, can provide valuable guidance about the audit process. Many people who receive audit notices make use of their expertise to navigate the process smoothly.
Avoid future audits
Prevention is key to avoiding future audits. Maintain accurate and detailed records of your financial transactions, income and deductions. Good record-keeping can help you substantiate your tax returns and reduce the likelihood of discrepancies.
Understanding your obligations under tax laws can be hard. That is why responding to an audit promptly and with clear communication is important. Audits are a process designed to correct mistakes, not a punitive measure. Sometimes, the mistake is even in your favor.