Surviving an IRS Audit

Surviving An IRS Audit

Have you been audited and now owe the IRS money? If so you may need to talk to a tax resolution specialist. The key to surviving an audit is to effectively plan for an audit. A large percentage of taxpayers are sole proprietors who work out of their homes, use their personal vehicle for both personal and business purposes and have a variety of expenses to write off.

Many things can trigger an audit. The IRS will flag returns that have either excessive write offs or under reported income. One way to effectively prepare for an audit is to get your records in order! Everyone, not just small business owners, needs to set up a good system of record keeping to maintain all documents that will be required during the course of an audit. A good system of record keeping would adequately maintain all records relating to income, expenses, home and investments. A basic record keeping system would keep track of the following:

Income
Form(s) W-2
Form (s) 1099
Bank statements
Brokerage statements
Form (s) K-1

Expenses
Sales slips
Invoices
Receipts
Cancelled checks or other proof of payment

Home
Closing statements
Purchases and sales invoices
Proof of payment
Insurance records

Investments
Brokerage statements
Mutual fund statements
Form (s) 1099
Form (s) 2439

Rules to recordkeeping
Many people wonder how long they must keep their income tax returns after the due date of the return. If you did not report income that was more than 25% of the gross income shown on your return you must keep the return 6 years. If you filed a fraudulent return or did not file a return then there is no limitation. If you owed additional tax on a return and your did not file a fraudulent return and you did not report income that was more than 25% of the gross income shown on the return then the limit would be 3 years. Any time a claim is filed for a credit or a refund after filing the return then you must keep the return must be kept the later of 3 years or 2 years after the tax is paid. If a claim was filed for a loss from worthless securities then the return must be kept for 7 years.

Remember, when you are accused by the IRS of owing taxes the burden of proof is on you the taxpayer. You must be able to prove what you claim. If you haven’t already, set up a system of recording keeping today to help you survive an audit. If you are in trouble then get help now!