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What to do After being Served with a Tax Audit

Getting a tax audit notice can throw you into anxiety because of the complications that come with it. You immediately start worrying whether your returns are accurate and if it is still possible to fix the problem. It’s comforting to know that you are not alone. About 70 percent of returns filed by individuals are subject to audit. A good number of people manage to resolve these cases successfully, especially with the help of a tax management service.

Steps to Dealing with an Audit

A tax audit is simply an accounting procedure by the Internal Revenue Service (IRS) to verify individual and business financial records and ensure tax returns were filed accurately. If you can prove that your first return was accurate and complete, then they do not seek to investigate further. 

However, if IRS can establish errors- especially those done through intentional misreporting- then brace yourself to pay taxes as calculated by the IRS, plus interest and penalties. To make this process painless for you, consult a tax relief management service for tax audit help. You can also follow these steps to resolve the issue:

·         Determine why you were selected for a tax audit: the IRS should inform you why you have been selected for an audit, but it is also your duty to find out why. You could be listed for several reasons, includingerrors in cash income, 1099 and W-2 forms, deductions higher than your income level, or your report from the previous year differs from the current. It could also be that you are associated with someone who is under audit, automatic flags or just random selection.

·         Establish how you are going to be audited:There are various audit types, and each has its own specifications. It could be a correspondence audit, office audit, field audit or taxpayer compliance measurement program (TCMP) audit.  Once you establish how you will be audited, it will help determine the documents needed, where to take them, and if you will need a tax lawyer.

·         Put together your documents: Start by getting all documents, receipts and records together. Remember to send in copies and not originals. Only send what has been requested, nothing more. If you can’t find the documents, then you canrequest duplicates.

Once you get a notice for tax audit, you could initiate the steps discussed above on your own or you could hirea professional to offer tax audit help by taking these steps:

-          Let the tax professional review the tax audit notice and explain in detail what it means and the implications
-          The professional will help you identify and gather the documents needed
-          They will help you research the issues raised in the audit
-          They will walk you through what to expect during the audit in detail
They will review the findings of the audit and get a detailed roadmap of the steps to follow

-          Let the professional explain your options, if you can appeal, whether you owe more money and if you can afford it

If you feel like audit process is too much for you, you could opt for audit representation. Here the tax professional will handle all your communication with the IRS and represent you during the audit. 

The professional will communicate and respond on your behalf. They will examine issues that can come up during the audit, negotiate and pay taxes owed by you if you are not able to pay. They will also handle any unforeseen issues arising from the audit.

It is better to avoid an audit entirely if possible.There are some ways to avoid a tax audit in the first place. These tips could be of help:

·         Identify risk factors for getting a tax audit: Your level of income has a lot to do with whether you are likely to be audited or not. The more you earn the higher the chance of having your returns audited. Certain segments of tax returns are more likely to attract more scrutiny. Ensure that you report all income accurately and only claim deductions and credits that you legally qualify for.

·         Proper claim of your dependents:Go through the rules for who qualifies as a dependent before you claim them. When a dependent is claimed twice, this becomes a red flag to the IRS. Be more careful when accounting for tax breaks especially because Earned Income Credit is prone to more fraud.

·         Ensure accurate accounting:Mathematical errors quickly catch the attention of IRS. You can use software for your calculations to enhance your accuracy. If you are filing individual returns, triple-check all the entries. Specifically, be careful when adding your income to your W-2 form. The IRS may correct this simple error for you, but it could also attract scrutiny of your returns.

·         Understand home office tax deductions rules:These rules are complicated and are easily manipulated.  If your returns claim home office deductions, you are likely to attract more scrutiny. To avoid a tax audit, know the rules well.

·         Take note of meal and entertainment deductions:If you plan to claim tax deductions on business travel, meals and entertainment, maintain proper receipts and records. See more details here.

·         Focus on deductions within your income bracket: You have lower chances of getting a tax audit if you focus on deductions and credits within your level of income. This is particularly important if you have miscellaneous deductions on Schedule A. It is your right to claim a legitimate tax relief but ensure proper documentation of all these expenses.

There are many benefits that come with seeking tax audit help from professionals as opposed to doing it alone. Obviously, they have more experience and understanding of tax issues and they increase chances of a good outcome.

 Although an audit could go either way, a professional will analyze your case once they have seen your documents and type of audit and advise you on the best approach before things escalate. The IRS tends to be more receptive to professionals because it simplifies their work, which increases the chance for a positive outcome.
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