Receiving audit notification from the IRS can be daunting and stressful. However, there are steps you can take to prepare for your audit.
It is beneficial to have a clear understanding of IRS audits and how to navigate them effectively.
Understanding why audits occur
The IRS conducts audits to verify the accuracy of a taxpayer’s returns and ensure compliance with tax laws. Audits do not always imply wrongdoing. They can result from random selection or because something in your return may have raised a red flag.
IRS audits are relatively commonplace. The IRS conducted over 700,000 tax return audits during the financial year of 2022. Triggers may include unreported income, excessive deductions or discrepancies between your return and information the IRS received from other sources, such as employers or banks.
Responding to an audit
Upon receiving an audit notification, it is important to read and review it carefully. This letter outlines the reasons behind the IRS’s selection of your return. It also tells you which documents you need to provide. Responding in a timely manner is essential. If you delay or ignore the request, it can lead to additional penalties or a more in-depth investigation.
To substrate the items in question, gather all relevant documentation, such as receipts, bills, employment documents and bank statements. Organizing these documents will help you present your case effectively and efficiently to the IRS.
Navigating the audit process
You have the right to understand the purpose of the audit and to know what the IRS finds during the process. Do not hesitate to ask for clarification if you have questions or concerns. Cooperation and transparency are key. The audit might take place through mail, at an IRS office or at a location of your choice, such as your home or office. The complexity of your case often determines the type of audit you undergo.
Remember, an audit is not an accusation of wrongdoing but a process to ensure tax compliance. Learning about this process can provide valuable guidance if you are facing an audit.