How To Protect Yourself In An Audit
The IRS will be well funded started 2021 going forward. This move will allow them to have as many IRS examiners looking into small business returns, which they are mainly targeting. Therefore, this increases the chances of being audited, more so for those that don’t hire a tax expert. As such, given the increasing likelihood of being audited, what must you do to protect yourself during the audit process? This article will look at ways you can protect yourself from both an office audit and a field audit.
First things first, know your rights
Even when the IRS thinks you have wronged them, you still have rights to a couple of things. You do have the right to privacy and confidentiality about your tax matters. It means that the IRS will not be too invasive than necessary. You also have a right to professional and courteous treatment by IRS employees. They mustn’t appear too aggressive and intimidating to you. You can also hire someone, an authorized tax professional, for representation during the audit. You have the right also to represent yourself for audit defense purposes. But that has proved to be a bad idea in the past. You are better off hiring someone like me, an authorized tax professional, to do the talking.
Besides the above, you also have the right to know why the IRS is asking for information, how they will use it, and what will happen if you do not provide the requested information. This information is mainly to do with your tax returns filed and the financials of your business. Finally, you have the option to appeal disagreements, both within the IRS and before the courts.
What are the other ways to protect yourself in an IRS audit?
Do not panic
If you panic, you lose focus and can easily not find some essential tax documents even when they are somewhere in your office. Therefore, keeping a calm mind is the best form of audit defense. You want to be on your A-game when you meet these IRS examiners. There are a couple of reasons why you should not panic. First, the IRS sometimes uses a random selection process through a computer to pick taxpayers for an audit. Also, you may be selected for an audit if you did transactions with a business that was audited. Therefore, you may be selected for an IRS audit even if you did nothing wrong. If you panic, that would be for nothing.
Present all supporting documents
For an audit to be successful, present all documents that the IRS asks for. Give them no reason to suspect tax fraud or errors. If you claimed charitable deductions, there must be paperwork supporting the claims. All your earned income should be backed by the necessary paperwork and correctly reported without missing a dime! If you filed your taxes using software, know that the IRS accepts some electronic files related to your taxes. You only need to know how and where to retrieve them. If you don’t know this, talk to someone. Or better yet, call my office and request a call with me to sort this out for you. Finally, always have financial statements and tax returns for the previous 3 years. The IRS assesses them too in an audit.
Keep your business in a good shape
What do I mean by this? Well, the IRS takes seriously how you keep your business safe. This is important, given the level of identity theft crimes going on because of stimulus checks. As such, they will want to know how reliable your internal controls are. They will want to know things like, who signs checks in your business, who opens letters and emails, how you keep your records, and, if the records are kept online, who has access to them? If you can’t keep your internal controls intact, who knows the other mess you could be sitting on and how much it could be affecting your taxes?
In a nutshell, there are several other things you can do to protect yourself in an audit. For example, you must keep a clean record of your payroll, showing employees’ salaries and how much you withheld. Also, when filing your return, don’t use rounded numbers at all. They raise suspicions. And never claim a deduction that is not fully backed by paper evidence. Nevertheless, you don’t have to worry alone about a tax audit. If you received a tax notice, call my office, book an online meeting with me, so we see how to help you out of the mess. You can also contact us for tax professional services to avoid being audited at all.
People also asked the following
1. What is a Tax Audit?
A tax audit is when the IRS examines your tax return to see if you provided correct data when filing your return. A machine can randomly select returns for an audit. Or, you can be selected if you did transactions with a business that was audited. Your return could also be selected for an audit if there are some reasonable mistakes in it.
2. How to Survive a Tax Audit?
Surviving a tax audit is not guaranteed, but providing all paperwork and hiring an authorized tax professional to represent you increase your chances of survival.
3. What happens when you disagree with the audit findings?
If you disagree with audit findings, you are saying that you understand the audit proposals, but you disagree with them. In that case, you will have to file a petition with the U.S. Tax Court no later than the date shown on the IRS notice. Note that you can’t petition after the deadline day.
4. How to Handle Your Tax Audit
In a tax audit, never enter without a tax professional representing you. Also, never panic about it, keep your calm, and ensure that the IRS examines your returns in line with your auditee rights.
5. What Can I Do if I am Facing an IRS Tax Audit?
First, do not panic. Pick up your phone and call an authorized tax professional to represent you in the audit – that’s all you got to do because the professional will then tell you which steps to take as you wait for the audit day. We do provide these services at Suncrest Financials. Feel free to contact us if need be.