Receiving a notice from the IRS for an audit can be unsettling, but it doesn't have to be a nightmare. While the idea of someone digging into your financial records may cause stress, it's important to know how to approach the situation calmly and confidently. Let's walk through the steps you need to take if you're facing an IRS audit. In this article, we'll also help you understand what a financial advisor brings to the table in such a situation and why seeking professional help can be a smart move.
What Does It Mean to Be Audited by the IRS?
An IRS audit is essentially a review of your tax return to ensure the accuracy of the information you've submitted. It's the IRS's way of verifying that you've reported your income correctly and claimed all the appropriate deductions.
Being selected for an audit doesn't automatically mean you did something wrong. Audits are sometimes triggered randomly, and in other cases, something specific in your return may have raised a question for the IRS. For example, large deductions or unique claims can prompt a closer look.
Most audits are conducted through the mail, where the IRS will ask for documents that support certain parts of your tax return. Sometimes, you may be asked to meet with an IRS agent in person.
What Should You Do After Receiving an Audit Notice?
If you receive an audit notice from the IRS, there are some actions you should take immediately.
Read the Notice Carefully
The notice will explain what part of your tax return is being reviewed and what specific documents or information the IRS seeks. Make sure you understand exactly what's being asked for before taking action.
Collect the Necessary Documents
You'll need to gather the paperwork related to the items the IRS is reviewing. This may include bank statements, receipts, or records of deductions you claimed. If you can't find specific documents, start by organizing what you have and consider contacting financial institutions for copies.
Double-Check Your Numbers
Take the time to review the numbers on your tax return that are under audit. Make sure the documents you're providing match what's on your return. If there's an honest mistake, you'll need to explain it. The IRS generally prefers transparency.
Don't Delay
The IRS typically gives you about 30 days to respond. If you need more time, requesting an extension early rather than ignoring the deadline is better. Delaying your response can lead to further problems.
How To Prepare for an IRS Audit?
Preparation is crucial when it comes to audits. Whether you've been selected for a mail audit or are being called into an office, it's best to approach it with all the necessary information in hand.
Stay Organized
Keeping your financial records organized throughout the year can make an audit much more manageable. If your documents are all over the place, now is the time to get them in order. Keep track of receipts, bank statements, and anything else that can prove the claims made on your return.
Stick To What's Asked For
It may seem helpful to send extra documentation, but it's generally best to only provide what the IRS has requested. Sending more than necessary can complicate things or raise new questions.
Be Honest
If there's a mistake on your return, admit it. Trying to hide errors or cover things up can lead to more serious consequences. The IRS is more likely to work with you if you're upfront about any mistakes.
The Different Types of IRS Audits
The list below explains the different types of audits. The type of audit you're facing will affect how you prepare.
Mail Audit
This is the simplest type of audit. You'll receive a letter asking for specific information or supporting documents that you'll need to mail back. If everything checks out, the process can be straightforward.
Office Audit
In an office audit, you'll need to go to an IRS office with your documents to meet with an auditor in person. This type of audit typically involves more complex issues that the IRS wants to discuss in person.
Field Audit
This type of audit is the most thorough. An IRS agent will come to your home or place of business to review your records. Field audits can be time-consuming and are generally reserved for businesses or individuals with large, complex returns.
Why Should You Consider Professional Help During an Audit?
Handling an audit on your own can be stressful. Professional help from a financial advisor has various benefits.
Expert Knowledge
The U.S. tax code is complex and constantly changing. A financial advisor understands these rules and can guide you through the audit process. They'll know exactly what the IRS is looking for and what the best possible response will be.
Potential for Reducing Liability
If the IRS finds an error in your return, a tax professional can help negotiate penalties or reduce the additional tax you owe. They can also identify any deductions you may have missed, which can lower your overall tax liability.
Support and Relief
An audit notice can be intimidating, especially if you're handling your tax matters alone. Help from a financial advisor provides immense relief, knowing that someone with experience will take care of the situation.
Avoid Future Audits
One of the best things a financial advisor can do is help you avoid further audits. By making sure your records are accurate and complete, you can reduce the likelihood of raising red flags with the IRS in the future.
Partner With Pasquesi Sheppard LLC for Your Financial Health
No one looks forward to an IRS audit, but it shouldn't be a nightmare. The key is to stay organized, respond promptly, and, ideally, get professional help. Pasquesi Sheppard LLC specializes in helping individuals and businesses navigate audits and other tax-related issues. Our team of financial advisors can provide you with the guidance and representation to make it through an audit successfully.
Contact us if you've received an audit notice or want to get an internal audit done in the Chicago, Illinois, area. We're here to help you through the process and secure your financial future.