02 Aug 3 Ways To Protect Yourself From An IRS Audit
Tax season is one of the most daunting and stressful seasons for just about every American. It can be overwhelming to gather all the necessary paperwork on time and hand it off to someone else to file away. All the while there is still the possibility that you could be audited. Though audits are rare, they do happen. You can cross your fingers, toes, and eyes hoping not to be one of the few that receive one; but it’s best for you to know how to protect yourself from an IRS audit.
If You Don’t Know What It Is, How Can You Protect Yourself From An IRS Audit?
Earning less than $200,000 per year means that you are less likely to hear from the IRS. In that case, your probability increases when you earn more. Again, this does not mean that it’s never going to happen to you. A tax audit is a review and examination of your accounts and financial information. The audit process is like Santa checking his list twice. The IRS makes sure that your income, expenses, and credits have been reported in accordance with tax laws and correctly. The information you used to file your taxes is then used to verify the accuracy of the amount you reported.
If you have been audited, you are entitled to certain rights during the process. The IRS website has outlined these rights during your IRS audit:
- Privacy and confidentiality about your tax matters
- Professional and courteous treatment by IRS employees
- Representation by yourself or an authorized representative
- Knowing why the IRS is asking for information, how the IRS will use it and what will happen if you do not provide the requested information
- The option to appeal disagreements, both within the IRS and before the courts
Some flags for the IRS to conduct an audit are some of the following expenses: bad debt expenses, medical expenses, home office deductions, casualty losses, and business travel, meal, and/or entertainment. It’s best to always have proper documentation for any deductions. We can’t emphasize that enough!
How To Avoid An Audit Being More Stressful
When it comes to finances, our stress levels can be affected significantly. Take care of yourself, your family, your business and your general financial situation with these simple ways to protect yourself from an IRS audit.
#1 – Reliable Tax Return Preparer
Your taxes and tax return should be prepared by someone that you can truly rely on. This should be someone that asks to see the proper records for deductions and credits if they say they can get you a large refund. Ask what items have been deducted because if the tax return preparer deducts what should not have been deducted, they don’t get audited – you do. One quick tip to know about tax return preparer and the IRS is this: if the IRS thinks that your tax return preparer is deducting large non-existent deductions or incompetent, you are more likely to be selected for an audit. Hire someone that knows the tax law and deducts items that you can properly document. Ask any and all the questions you need to feel comfortable with your tax return preparer.
#2 – Honesty Is The Best Policy
When it comes to itemized deductions, you need to be truthful. It seems like common sense, but this can reduce your chances of an audit drastically. Know your numbers and keep track of everything as much as you can throughout the year. Reporting your real income, deductions, credits, and other figures can be the best method to protect yourself from an IRS audit. This is especially true when it comes to your income. If you are hiding large sums of cash or are earning a six-figure income and lie about it, you will be a high target for an audit. You should be able to support any number that is claimed on your return.
#3 – Have Everything & We Mean EVERYTHING
We’ve said it before, and we can’t say it enough: keep documentation of everything. Keep copies of relevant tax figure receipts and paperwork i.e. business purchases or expenses, documents that support your itemized deductions, and any/all information that relates to your salary, wages, or tips. Report all of your income. If you receive a 1099, report all of your income shown on that form. Track your charitable donations carefully.
These ways to protect yourself from an IRS audit are simple. We understand that it can be difficult to work, have a home life, and know all the ins and outs of your finances when it comes to taxes. If you are looking for help in this area, Steph’s Books can be the perfect solution for you and your needs. We are reliable, trustworthy and exceptional in every aspect of our business. It is our duty to support our clients and find ways to save and protect their finances. Our clients are able to live a fuller life and devote that extra time into their business and home life. If you have any questions, Steph’s Books today!