Facing a tax audit is enough to strike fear in even the most intrepid taxpayer. The Internal Revenue Service is one of the most feared organizations on Earth, and it is no wonder so many people are fearful when an audit notice arrives. The good news is that by preparing properly taxpayers can reduce the stress of that audit and increase their chances of making it through with their finances intact.
Gather Relevant Paperwork
Some tax audits will have a narrow focus, like looking at the acceptability of a specific deduction or set of deductions, while other audits will be more wide ranging. The paperwork you received with the audit notice should provide information about the focus of the audit, and it is important to gather any paperwork that may be relevant to the questions the auditor is asking. When it comes to paperwork, it is always best to have it and not need it than to need it and not have it.
Consult Your Tax Preparer
If you use a CPA or other tax professional to prepare your tax return, be sure to contact that individual as soon as you learn of the audit. A certified accountant or tax preparer may be able to provide valuable advice regarding what you will need for the audit and how you should prepare. If you prepared your own taxes using one of the popular tax preparation software packages it is a good idea to go back through the last couple of tax returns, paying particular attention to red flags like excessive deductions or overlooked income. It is also important to gather all of your paperwork, including receipts for donated items, business purchases and anything else that may be relevant.
Bank and Investment Paperwork
To properly prepare for the tax audit, you will also need to gather your bank statements, investment paperwork and other relevant information. If there is a question about the capital gains or losses, you claimed on your tax return it is important to have documentation showing the purchase and sale price of any stocks you bought or sold during the tax year. If you are missing any paperwork, be sure to contact your broker well in advance of the scheduled audit date.
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