The thought of an audit from the IRS commonly leaves people with a massive sense of dread. Audits have a notorious reputation as one of the most challenging legal hoops that someone needs to jump through, and a bad result in an audit can have considerable consequences.
The IRS audits nearly one out of every 220 people each year. There is no assurance who the IRS will or will not audit with every year, so it is up to individuals to make sure they are ready for an audit. If you are facing an audit, here are five tips to prepare:
One of the greatest difficulties in an audit is finding the documentation the IRS is requesting from you. If you are not thorough in organizing your financial documents, locating tax documents from 2016 can take days or longer.
Avoiding the IRS or taking your time to comply with their requests only hurts you in the long run. By working with the IRS, you show good faith in working with them, which can go a long way in settling things swiftly and efficiently.
Maintain a timeline
It is rarely enough to keep all of your financial documents in one location. Keep a strong record of the exact timeline of events for your economic history. The more accurate your timeline, the easier it will be to answer any questions about the IRS has about the order of events.
Ask your own questions
The IRS may have plenty of their own questions in their audit, but do not be afraid to ask your own. Asking for alternative suggestions can benefit both sides in an audit. Looking for clarity in confusing areas can also help you get through an audit faster.
If you have received notification of the IRS’s intent to audit you, prepare for their audit by auditing yourself. Take a look at your own financial history and consider how accurate your documents are. If you find any shortcomings before the IRS asks about them, you may be able to answer their question on the spot rather than scramble for information later on.
Foresight is key
Whether or not you are facing an audit, you can take precautions today to make an audit easier tomorrow. Stay thorough in your documentation and organization to eliminate the fear of an audit.