It can happen to anyone – suddenly you are being audited by the IRS. You may owe back taxes or not, and an IRS audit will help clear that up. Whether you are handling the IRS audit yourself, or are hiring a professional to help you with it, the issue here is that this process may be a bit daunting, confusing, and stressful. There are two types of audits, the correspondence audit – through the mail, and the in-person audit, where the IRS representative will visit you or you will have to go to the nearest IRS office. This type of audit is more complete and time-consuming.
Whether by mail or in person, you must know how to handle the audit. There are three ways in which you can handle an IRS audit – by yourself, by using form 8821, which authorizes a representative to receive information for you, but is not authorized to act, and by using IRS form 2848, an actual power of attorney in which you authorize your representative to act for you and handle the audit, without you necessarily being present – this could be your CPA, tax attorney, or an enrolled agent. Here are five tips for getting through an IRS tax audit feeling as if you just got a tax relief.
• It is best to hire the assistance of a professional to help you through this tough time, if you are not sure how to handle the situation. You may be looking to obtain tax relief or reducing the amount owed in back taxes, and the help of a professional that knows what he/she is doing is important here – whether that is your lawyer or your accountant.
• Know when to speak and speak the truth for legitimate tax deductions, even if your records might not be organized, and your receipts are a mess. For future reference, it is best to organize all your receipts by month in a file, and once you are done filing your taxes put everything together in a file and enveloped marked with the year. In the event that you are audited, you will find everything fast. This is a simple, but very effective tip.
• Know your rights. Study publication 1 – the taxpayer bill of rights. If you need more time, ask for it – it is under your taxpayer bill of rights, even if the audit is not going so well.
• Be straightforward and cooperate with your auditor – this gives a good impression since you don’t have anything to hide. Present the information they are asking for, no need to volunteer other information, just what they want to see. Respond promptly to the IRS, you do not want to play with communication in this matter.
• The best way to handle a possible IRS audit is by preventing it. You do this by:
Filing your taxes on time
Paying your taxes on time
Keeping records that are straightforward and organized
Hiring a reputable tax accountant
Reviewing your taxes before you send them
Educating yourself by reading the tax publications
Keeping personal finances separate from business
These are just five tips for getting through an IRS audit and protecting your taxpayer’s rights.