As a taxpayer, one of the most dreaded letters you can receive from the Internal Revenue Service is the one notifying you that you have been chosen for an audit of one of your prior year’s tax returns. This notice is sent to all types of taxpayers: individuals with only W-2 income, non-profits, S-Corporations, etc. No taxpayer is exempt from being placed under the IRS’ audit microscope. Though it feels intrusive and can be frightening, there are steps you can take to make the process less painful should your “number” be called.
- First, and I’m sure you’ve heard this before, keep good records. This is the most basic of basic guidelines that you should tend to with anything reported on your annual income tax return. As a reminder, the tax system in the United States is considered a voluntary program because we self-report the information each year instead of being required to meet with an agent of the Federal Government so they can review and input the documentation directly. The only way the IRS has to “inspire” compliance with the reporting standards is to conduct audits on both a random basis and when something reported on a tax return is flagged as “suspect.” By keeping your receipts and records in order, you can be prepared to explain how the figures reported on your tax return were determined.
- Double-check your tax return before determining it is ready to be submitted to the IRS (and State, if applicable) for processing. Audit flags are often notated over something that is incorrectly reported. The responsibility of accurately portraying your income and allowed deductions ultimately falls on you. Take the time to review everything before you click “submit” or authorize your tax return preparer to file the return.
- Slow down and think about all the income sources you have. Consider your traditional income streams, such as your W-2, but also think about interest income reported on stock or investment accounts, income received from selling items on eBay, gifts or inheritance benefits you may have received from family members, etc. And if you are self-employed, remember that any cash payments received for services you offer or products you sell and any tips received must be reported as income.
- When reviewing your tax return before submitting it for processing, “read” what it says. If you report your income was $85,000, and you claim $20,000 in mortgage interest, $10,000 in medical expenses, and $35,000 in tax-deductible donations, you are telling the IRS (and State, if applicable) that you lived on $20,000 for the entire year. Ask yourself, “does this really make sense?” By doing so, you can save yourself a lot of worry and heartache when the IRS tells you the tax return is being audited because you know to be ready for it, if the figures are accurate.
- If you are a self-employed individual or are reporting income activities for your business entity, know which expenses are most often audited and be prepared with documentation and receipts. In my experience, the items the IRS has most frequently challenged are gross income figures, travel expenses, vehicle mileage claimed, and meal expenses. Educate yourself on what documentation, information, and receipts will be required to substantiate each of these expenses, then make sure to maintain those records meticulously moving forward. It can be a pain in the rear end to note down all the pertinent information in your log each time you drive somewhere for business, but given that the current mileage rate in 2023 is 65.5 cents per mile, it is well worth your time and effort.
- If you are an S-Corporation officer, make sure to have annual reviews conducted of your W-2 compensation. This is one of the hottest “audit triggers” the IRS has been instructed to watch for. If the company grosses $2.0 million in revenue, yet you only report $18,000 in Compensation of Officers, you better believe an audit will be triggered.
In summary, how much exposure you and/or your business have in the incidence of an audit is entirely in your control. And if you get an audit notification, reach out to your tax return preparer immediately. If they are unable or unwilling to help, reach out to the Golden Lion Tax Solutions team, as our staff has successfully handled audits for clients for over 23 years. We are highly adept at taking care of the client from the receipt of the initial notification through the final determination. And, should the audit result in additional tax being assessed, we can be ready to fight any exorbitant penalties proposed and negotiate a resolution plan to address the debt.
Trust. Protection. Wisdom.
Your future and your family deserve the right protection. Golden Lion Tax Solutions will be your advisor and confidant throughout the entire journey. We guarantee to offer you or your business best-case solutions for your tax debt. We are by your side every step of the way. Start now and get your life back.
For help with your tax debts, email firstname.lastname@example.org or call 833-LION-TAX (833-546-6829)
Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.