Nothing can strike fear in the heart of a business person quite like the word “audit”. An audit can be stressful, time-consuming, and could cost money.
The reason for an audit is simple. The IRS wants to make sure the deductions and exemptions you’ve claimed on your tax forms are legitimate. If you get the bad news that an audit is imminent, here’s what you need to know to get through it with your sanity intact:
How to survive an audit: Have documentation
Always keep your business receipts organized and sorted in a separate folder where you’ve marked the purpose of the expense. This will allow you to both show and explain to the auditor why this expense was deducted. Have separate folders for credit card slips and canceled checks. You’ll need the original checks, not copies.
Also, keep your bank statements carefully organized in a folder so you can justify all deposits. If you’re claiming mileage deductions, keep a notebook where you’ve recorded business-related mileage. This should be kept in your car’s glove compartment and filled in after each trip. Thorough documentation can help you sail through an audit.
How to survive an audit: Request a delay
If you receive notification of an audit and your records are not well organized, ask for a delay so you can get your records straight. It’s imperative that you present good documentation to the auditor.
How to survive an audit: Don’t talk too much
When you confront the auditor, you’ll want to give him the facts but don’t say too much. Give the information that’s asked for and no more. Be courteous, professional, and cooperative during the audit. Never lie to an auditor as this can only cause future problems for you.
Answer the questions asked by the auditor in a straightforward, truthful manner without adding additional information. Volunteering too much information can open up other points of concern. Keep it simple and to the point.
How to survive an audit: Bring along support
If you had an accountant do your taxes, bring your accountant along for the audit. Another option is to bring a tax attorney with you. It’s always a good idea to contact an attorney when you first receive notification of an impending audit do you can be aware of your rights. This can also help to alleviate some of the stress.
How to survive an audit: Don’t be afraid to negotiate
If you’re audited there’s a good chance you’re going to end up with a tax bill. You may be able to reduce the damage by politely negotiating with the auditor. Ask if there’s any way to waive certain penalties.
If denied, remain calm and professional. If you feel as if you’re being treated unfairly, you can ask to speak with a supervisor as a last resort.
You can survive an audit by remaining calm, collected, and supplying the proper documentation needed. Plus, by taking steps to keep adequate documentation in the future, you can make your future tax life much easier.
How to Survive an Audit