Making your tax audit nominally painful

Preparing a tax audit can be both difficult and intimidating. On the one hand, you’re essentially being investigated by the IRS to insure that you filled out your tax forms properly and paid the proper amount of taxes for a given year. On the other, there’s something in your initial tax filing that has caused a red flag to go off for the Internal Revenue Service. However, it’s also important to remember that not all tax audits are indictments against your tax preparation process. Rather, they are simply to make sure that you’ve filled out your paperwork properly. Therefore, the best way to approach an audit is to be sure you have all you information organized. Below are ten tips from the IRS to help you prepare for an efficient audit. Check out the IRS website for more information on each tip and keep reading to get general ideas on how to make your audit go more smoothly.

Staying organized for an IRS audit

Video: How to avoid an IRS audit

Keeping your receipts is an essential part of successfully beating an IRS audit. Be sure to keep them in a safe place where you can get to them quickly.

Ten Tips from the IRS to prepare for your audit

1. Have your plan documents, opinion letters, requested records and any agreements with outside service providers ready when the IRS agent arrives.

With respect to the other nine steps on this list, preparation is actually the key to the entire audit process with the IRS. What the IRS is trying to do by auditing you is to make sure that you’re filing your taxes properly and keeping yourself organized. Far too many people either underpay or overpay their taxes simply because they are not organized. Of course, the IRS is going to go through your tax forms with a fine-toothed comb as they audit you, but above and beyond that, they want to make sure that you’re not lying about your taxes and will need to verify your side of the story. Being organized and providing them with everything they need is the first step to regaining your credibility and providing the IRS with everything they need. Typically, they will let you know specifically what they need during your initial meeting, but get a jump-start on them and prepare right away.

2. Make sure the appropriate people, including any trustees, representatives with power of attorney, record keeps, etc., are available and ready to talk.

Many Americans do not file taxes on their own. They hire someone to prepare their taxes for them or they rely on a spouse or family member to get the job done. However, when it comes to audits, the blame ultimately comes back to you so you want to be sure you’re dealing with someone you can trust when it comes to your taxes. All qualified accountants or tax preparation services usually offer some sort of audit protection plan. If yours doesn’t, find one in the future. No matter who helps you though, it’s important to make them available to the IRS. Otherwise, the IRS agent could question your credibility, and again, the blame will ultimately fall on your shoulders.

3. Be prepared to explain the terms of your plan

Regardless of whether you do your taxes on your own or have someone do them for you, you need to understand how the process works in the first place. Most people are slightly too complacent when it comes to taxes and ultimately do not know exactly what they’re paying. You don’t need to know every tax code, but have a general understanding of why you needed to pay taxes or why you received money back at the end of the year. Do you withhold taxes during the year or do you pay them every April? Does your employer take out income taxes from your paycheck? Know the answers to simple questions, even if you don’t file your taxes yourself. It’s helpful and lets the IRS agent know you’re on top of your finances.

4. Be prepared to explanation the operation of your plan

Because most people have someone prepare their taxes for them, they don’t have a grasp over the individual forms they actually send in to the IRS or the forms used to crunch numbers on certain parts of the tax forms. You need to be able to provide documentation for the IRS agent and that means understanding what documents were used to fill out your tax forms. Even if someone files for you, chances are they give you hard copies of all your receipts, W-2 forms, etc. so you need to make sure you hang on to those and are ready to show them to an agent, if needed.

5. Be prepared to provide all applicable test results

In addition to the paperwork used to fill out your tax forms, you also need to be able to provide any and all forms about your employer’s process of withholding funds for taxes. These forms must be from the year in question. This specific tip can be confusing so check out the IRS website for more information on how and why you need to provide all applicable test results.

6. Be prepared to explain internal administrative processes

Like the previous tip, this one also refers to the system of checks and balances performed by your employer with regards to your actual paycheck and your compensation. Most employers, especially larger ones, do not pay employees directly. Or, if they do, they use a payroll department that collects data from other departments with regards to who gets paid what amount. You must find out from your employer how exactly this process works and report back to the IRS. They need to be sure you’re being paid the correct amount and that that amount is being relayed to the IRS through your tax forms.

7. Be prepared to identify plan errors

If you are knowledgeable enough to go through your tax forms and find errors (or if you can hire someone to help you do it), this can be very helpful in the audit process. In many cases, there is a simple operational error that has caused a red flag on your tax form. If it is minor enough, the IRS will let you off without penalty. It also saves everyone time. If the IRS has to find the error for you, be ready to explain why the error occurred and to correct it promptly when directed to do so by the IRS.

8. Be prepared to provide information about related employers/entities

Because some business plans can be intricate and hard to understand, the IRS often questions taxpayers about how exactly their business operates, who makes money and how much they make and whether there are any other types of income coming in that may not be reported or reported corrected on the tax forms. Be prepared to explain how your business makes money or how you make money. Because many people hold second jobs or simply have income coming in that cannot always be accounted for easily, the IRS wants to understand your situation completely.

9. Consider utilizing annual self-audit as a verification tool

As with anything, you need to accountable for yourself even before the audit process begins and especially if you’ve never been audited before. Create a system that allows for you to easily and smoothly prepare your taxes at the end of the year and trust yourself to self-audit and be sure that everything is correct. If you’re allowing someone else to prepare your taxes, ask questions and don’t take shortcuts. It’s the best way to avoid an audit altogether.

10. Consider utilizing available IRS resources

The IRS has a web site, a list of tax professionals and tons of materials on how to avoid an audit. The problem is that many people simply fail to use them or to use them enough. Visit the Internal Revenue Service’s web site to find more tips and techniques for successfully making it through the IRS process. You’ll be glad you did.

What to do at the end of an IRS audit

Video: Know your rights following an IRS audit

You have several options at the end of an IRS audit. Know your rights and understand the adjustments an IRS agent makes to your situation after an audit.

List of agencies that assist in “fighting the IRS”

No matter how educated you are about the process of surviving an IRS tax audit, chances are you are still relatively intimidated about sorting out your situation. And while the tips above are helpful, the entire process can still be very confusing. Check out this site to learn some even more basic tips about surviving an audit. Then, start looking for help with your audit.

See the list below to find the phone companies of some companies who can help you fight the IRS:

CCH Audit Management
(813) 675-6226

Clear Tax Relief
(800) 589-7230

Freedom Financial Network
(866) 499-7385

Freedom Tax Relief
(800) 920-0045

JG Tax Group
(800) 536-3077

JK Harris & Company
(800) 826-6436

Tax Care Pros
(866) 889-6777

Tax Relief Source
(800) 391-4625

Tax Resolution Services, Co.
(866) 477-7762

Tax Resources, Inc.
(866) 781-9696