Some may have already been audited in the past. If you have, don’t think that you are free & clear of future audits; quite the contrary, the IRS will be looking at future returns of yours even more closely.
What is an Audit?
An audit is the inspection of an individual’s or entity’s books and records by the IRS> If you are being audited, the IRS will send you a letter stating which type of audit applies to you. There are 3 types of audits.
• Correspondence Audit – The most common. You don’t physically see an IRS agent for this type of audit. The IRS will send you a letter requesting documentation and you can mail it to them instead of delivering it to them in person.
• Field Audit – If the IRS needs to verify information about your home or business, they may come to see it. Field audits usually involve businesses and home based businesses.
• Office Audit – You must been seen in an IRS office and bring with you the requested documentation.
How to Prepare for an Audit
First things to do:
Always provide anything the IRS asks for within the requested amount of time. If you’re asked to appear before the IRS, you should bring along your tax return and all of the supporting documentation for the tax year in question, along with anything else requested in your IRS letter. However; don’t let the auditor keep any of your originals – always provide them with a copy of anything requested. If you find during your audit that you don’t have the requested documentation, it is in your best interest to pay the tax, penalty or interest.
What to Keep in Case of an Audit
You should keep your tax returns and any supporting documentation for your tax returns for 7 years.
Supporting Documents May Include
• Home mortgage statements
• Forms W-2’s and W-2G’s
• Forms 1099, 1098, 1099-R, 1099-T, K-1
• Receipts from any employee business expense
• Airline flight schedules/log book
• Justification of fair market value for any donations
• Receipts for donated items with value greater then $500
• Receipts for all charitable contributions
• Receipts for rental property income
• Brokerage statements
• Receipts for qualified education costs
• 401K statements
• IRA contribution records
• Receipts for items sold at a gain
• Home office related receipts
• Pay stubs
• Copy of the front & once cancelled check you used to pay tax balance due, if applicable
Which returns are more likely to get audited?
According to the IRS annual data book, individual returns where taxpayers claimed the Earned Income Credit were high on the list. Also, business owners filing a Schedule C are increasingly being examined by the IRS. The IRS is also closely looking at individual returns with Employee Business Expenses. (Police Officers, Pilots & Flight Attendants)
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