Facing an impending IRS audit can be a stressful experience, but the good news is that there are steps you can take to prepare yourself and your finances for the process. By being proactive and organized, you can minimize the potential negative consequences of an audit and ensure that you come out of the process with your finances and reputation intact.
Here are some tips to help you prepare for an impending IRS audit:
- Gather your records: Before the audit, you’ll need to gather all the financial records that relate to the tax return in question. This includes receipts, invoices, bank statements, and any other documents that support the income and deductions on your return. You should also collect any documents that relate to your personal finances, such as mortgage statements, credit card statements, and investment account statements.
- Review your tax return: Take some time to review the tax return that is being audited. Make sure you understand the income and deductions listed on the return, and be prepared to explain how you arrived at those figures if asked. If there are any discrepancies or errors, you should be prepared to explain them and provide documentation to support your claims.
- Organize your documents: Once you’ve gathered your records, organize them in a clear and logical manner. Label each document with a brief description, such as “2019 W-2” or “June 2020 Bank Statement.” This will make it easier for you to locate the documents you need during the audit and will help the auditor to follow your explanation.
- Hire a tax professional: If you don’t feel confident handling the audit on your own, you may want to consider hiring a tax professional to represent you. An experienced tax professional can help you prepare for the audit, represent you before the IRS, and negotiate a settlement if necessary. They can also help you understand the audit process and what to expect.
- Be honest and cooperative: Above all, it’s important to be honest and cooperative during the audit process. The IRS auditor is there to do their job, and they’re not trying to trick you or catch you in a lie. If you’re open and honest with the auditor, it will go a long way towards building a good relationship and resolving any issues that arise.
In conclusion, an IRS audit can be a stressful experience, but with the right preparation and attitude, you can navigate the process successfully. By gathering your records, reviewing your tax return, organizing your documents, hiring a tax professional, and being honest and cooperative, you can come out of the audit with your finances and reputation intact.