Income Artist

IRS Audits: What To Expect and How To Prepare

Author: Jimmy Barron
Published:December 8, 2023
3 mins 56 secs

Dealing with the Internal Revenue Service (IRS) can often feel daunting, especially when facing an audit.

An IRS audit involves a review of an individual’s or corporation’s accounts and financial information to ensure information is reported correctly according to tax laws and to verify the reported amount of tax is correct.

Understanding what to expect and how to prepare for an IRS audit can significantly reduce the stress involved and lead to a more favorable outcome.

In the face of such challenges, having reliable tax relief advocates by your side is essential.

These professionals offer guidance and support, ensuring you are well-prepared and represented throughout the audit process.

This blog post aims to demystify the IRS audit process and provide practical steps for preparation.

Understanding The IRS Audit Process

An IRS audit can occur in several forms, each varying in its process and intensity. Among these, mail audits are the most common.

Understanding The IRS Audit Process

They typically focus on specific issues that can be resolved through correspondence.

In this type of audit, the IRS sends a letter requesting additional information or clarification on certain items in your tax return.

This might include providing proof of income, expenses, or tax credits claimed. The taxpayer is expected to respond with the necessary documentation by mail within a given timeframe, usually about 30 days.

Office audits are more involved. You must visit an IRS office to discuss your tax return in these cases. This type of audit involves bringing in various documents and records for review.

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You should present bank statements, receipts, and other financial records to substantiate the entries on your tax return.

Office audits often indicate that the IRS needs more detailed information than what can be provided through mail.

Field audits are the most comprehensive and invasive type of IRS audit. In these situations, IRS agents may visit your home, business, or accountant’s office.

They thoroughly examine your financial records, lifestyle, and business operations, if relevant.

Field audits are typically conducted when the IRS believes there may be significant discrepancies in your tax return or when large sums of money are involved.

This type of audit can be daunting, involving direct interaction with IRS agents and more detailed scrutiny of your financial life.

Key Areas Of Focus In An IRS Audit

Income Verification

The IRS will verify that you’ve reported all your income. This includes wages, business income, dividends, and other income sources.

It’s essential to ensure that all income sources are accounted for, including less obvious ones such as rental income, alimony, or income from foreign sources.

The IRS will cross-reference your reported income with information it receives from employers, financial institutions, and other sources.

Deduction Verification 

If you’ve claimed deductions, be prepared to prove them. This could include charitable contributions, business expenses, and education expenses.

Be sure to have receipts, bank statements, and other documents that support your deductions.

Overstated or unsubstantiated deductions are red flags that can lead to further scrutiny from the IRS.

Tax Credit Verification 

Similar to deductions, if you’ve claimed any tax credits, you’ll need to justify them.

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This may include providing documentation for education credits, energy credits, or credits for dependent care expenses.

It’s essential to understand the qualifications for each credit claimed and ensure that you have the necessary proof to support your claim.

Preparing For An IRS Audit

Preparing For An IRS Audit

Gather Your Documentation

Preparation is crucial when it comes to an IRS audit. Start by gathering all relevant documentation. This includes:

  • Tax returns for the year in question.
  • W-2s, 1099s, and other income statements.
  • Receipts for deductions and credits.
  • Bank and credit card statements.
  • Employment records.
  • Property records for real estate or investment-related queries.

Understand Your Rights

As a taxpayer, you have specific rights during an audit. These include the right to professional and courteous treatment, privacy and confidentiality about tax matters, and the right to know why the IRS asks for information, how it will be used, and what will happen if the requested information is not provided.

Seek Professional Help

If you feel overwhelmed, consider seeking the assistance of reliable tax relief advocates. These professionals can provide valuable insights into the audit process, represent you in discussions with the IRS, and help protect your rights.

Responding To The IRS

Promptness in responding to IRS requests is essential. If you need more time to gather information, contact the IRS to request an extension. Always keep copies of any documents you send.

Summing Up

An IRS audit doesn’t have to be a terrifying experience. With the proper preparation and understanding, you can navigate it successfully.

Gather all necessary documentation, understand your rights, and don’t hesitate to seek professional assistance. Remember, being prepared and informed is your best defense in an IRS audit.