Be Prepared for an IRS Tax Audit, Before or After It Happens
If you hear from the IRS, you may feel a startling sense of dread. This is common—and is especially true when facing an audit. An IRS audit is an attentive, grueling look at your personal or business tax returns, item by item and line by line. They will check things like your reported income and make sure that your reported income, among other things, it is accurate.
Even if you are careful, your tax return may fail when subjected to harsh scrutiny. Preferably, IRS audits should just be avoided. But this is not always the way things work out. If you are subjected to an audit, you should be prepared ahead of time to handle the situation.
What to Expect
During an IRS audit, several items will be checked. Such as:
• Revenue. Auditors will examine several items to confirm your sales including bank statements, credit processing statements, accounts receivables, sales tax returns, sales journals, and internal financial statements. The point is that your sales will need to match at every level. If you start with $1M in receivables or cash register receipts and only put $500K in income on your tax return, you could be facing a tax evasion penalty.
• Expenses. In an IRS Audit, you have the burden of proof. You will need original copies of receipts, cancelled checks and credit card receipts in order to prove that the transactions occurred. Next, you will need to prove that the expense was ordinary and necessary to the production of income for the entity.
• Assets and Liabilities. Every item on your Balance Sheet will be verified for its veracity and completeness.
How it Works
First, you’ll receive an automated letter from the IRS letting you know that you have been selected for the auditing process. Every IRS letter is not necessarily cause for concern. A letter might be to inform you of an automated adjustment for owing additional taxes due to a preparation error. No matter what the reason for the letter, any mail from the IRS should be opened immediately. It might be tempting to put it off, but this is never a good idea and can lead to additional problems.
Contact Accounting Solutions Ltd. if you need help with the IRS. These issues are better when taken care of immediately. If you have been selected for audit, someone needs to contact the agent assigned to your case to arrange a time to meet. We will need to prepare a case supporting the accuracy of your return.
Things to Keep in Mind
There is a good chance that the IRS agent may ask whether you correctly reported and/or recorded:
• All of your income
• Any cash transactions
• Business sales and related receipts
• Business-related travel expenses
They may also ask: Whether your expenses match your reported income and does the correlation make sense? Were there any noteworthy business write-offs that need to be addressed? And more…
Once the IRS agent completes the audit, hopefully you will receive a “no change” letter stating that you do not owe additional tax. If you owe additional funds, you may be asked to sign a document that waves your right to appeal. If presented with such a document, you have the right to:
(1) Sign the waver and pay any outstanding or additional taxes
(2) Request an appeal
Seek Professional Advice
If you need help understanding what to do in the event of a IRS tax audit, feel free to contact Accounting Solutions Ltd. at 773-267-7500 or 888-310-0300 or email us, chris@accountingsolutionsltd.com. We look forward to working with you!