Getting that audit letter can be nerve-wracking, but understanding the type of audit can ease the process. Let’s dive into what to do when you receive that invitation.
Step 1: Income or Expense?
First things first, figure out whether the audit is about your income or expenses. This helps guide your next steps.
Income Audit Insights:
If it’s an income audit, the aim is to check if you might have reported less income than you should have. The IRS wants accurate income reporting, not to cut your taxes.
Expense Check:
For expense audits, the IRS wants proof that your deductions are valid. This is to ensure you’re not claiming more expenses than allowed.
Know Your Audit Type:
Remember, audits can focus on income, expenses, or both. Knowing the type helps you prepare.
What to Do:
Gather Proof: Collect income records or expense receipts, depending on your audit type.
Stay Accurate: Always provide truthful information and avoid fudging the numbers.
Expert Help: If it’s confusing, consider a tax pro for guidance.
Be On Time: Stick to deadlines and request extensions if needed.
Stay Courteous: Communicate with the IRS politely and professionally.
In a Nutshell:
While audit letters might stress you out, taking a calm and organized approach makes it manageable. Determine your audit type, stay accurate, and seek help if things get tricky. Audits might seem scary, but handling them right can lead to a smoother resolution.
Kelly Coughlin, CPA
CEO, EveryDayCPA.com
Founder,TaxRxCenter.org