How to Prepare for an IRS Audit

On: May 1, 2020

IRS audit is no one’s dream. There are, however, things you can do to prepare, which will make them far less painful and much easier for you. Here are some tips for how to prepare for an IRS audit.

About IRS Audits

To know how to prepare for an IRS audit, you must first understand what happens during an IRS audit and why. An audit is initiated by the IRS if and when they question the legitimacy of your claimed income. People sometimes mislead the IRS about the true nature of their annual income. The IRS, therefore, sees it as its job to investigate these cases. During these investigations, the IRS seeks to verify how much the individual in question is making versus how much they are claiming. During the audit processes, auditors will ask that you provide documents to verify your income. You should have all of these ready and on-file. An audit should not require you to find or create any new materials. But if, for some reason, you do not have the original materials, you can usually find a way to create copies. Just make sure that you only provide your auditors the actual material they requested. Do not volunteer any new material that has not been requested.

Do Not Ignore the IRS

The IRS will contact you by phone or mail if there seems to be any problem with your taxes. While some people are in the habit of ignoring any calls that are from numbers they don’t recognize, if you have legitimate messages from the IRS, you should not ignore them because the problem will not just go away unless you consciously decide to take care of it. One thing to be sure of, though, is that if you are on the phone with an “auditor,” you do not simply give him your sensitive personal information (like your social security number) without first being certain that who you are talking to is legit from the IRS

Gather the Right Forms

There are several documents the IRS may need you to provide to conduct their audit.

• Brokerage statements: A brokerage statement is simply a monthly view of the activity on any of your brokerage accounts. If you do not have this information on file in physical form, it should be available for printing online.
• Home mortgage statement: A home mortgage state provides information to the IRS about how much money you are paying every month toward paying for your house and where exactly that money is going.
• Pay stubs: Pay stubs are a simple way for IRS auditors to see how much salary you are making from (presumably) your primary job. If you have additional income from other sources, you will need to provide documentation for that as well.
• Previous tax returns: You will need to have records of taxes that you have paid in the past. Try to have at least three years of tax records on file and ready to go. If you can have five or more years, though, that is better.
• Receipts: You should keep as many receipts as you can, but be prepared to show receipts for major purchases of things over $1,000.
• Retirement account records: If you have one or more retirement account, you should bring a statement with its basic information and information on how much you put into the account and on what basis.

If the IRS is auditing you or someone you know, you should take the time to get prepared. And always make sure to call Leading Tax Group and don’t attempt to do it yourself.