No one likes to get a letter from the IRS stating that you are being audited. The good news is that there are less than 1% of all people that file income taxes making less than $200,000 that will ever get one of these letters on any given tax year.
However, if you make more than a million you have about a 10% chance of being audited any tax year. This is typically because people that make more money tend to have more deductions and this can often trigger the audit. Generally audits are not random and it isn’t just your turn to be audited, it is because of a pattern of deductions or offsets that triggers a computer to generate your name on a list.
If you are audited and you use an accountant your first step should be to get in touch with this professional. From there you can discover what needs to be done to clear up the issue, which may actually be relatively simple in many cases.
To prepare for an audit your accountant will typically have you sit down and:
- Make a complete review – your accountant will double check all information you have provided for accuracy. While uncommon mistakes can occur in copying information or in failing to enter the correct information on a software program that automatically transfers data to the accountant.
- Check your write-offs – your accountant and you should review all your tax write-offs to ensure they are correct. This can also include assisting you in determining what data or documentation will be needed to prove these claims are accurate and valid.
- Review any areas of concern – for those that are self-employed there can be more potential concern from the IRS than for those that are employed. If you are self-employed your accountant will assist you in gathering information and even getting third party verification of income, business related travel and other areas where the IRS is asking for further information or verification.
Last but not least the accountant will also be able to represent you at the audit, helping you to provide the information that is needed to prove the validity of the data that you have submitted on your income tax return.