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How to prepare for an IRS audit

On Behalf of | Jun 28, 2024 | IRS, Tax Law

Facing an IRS audit can feel overwhelming, but preparation can make the process smoother.

Follow these steps to get ready and ensure everything goes as smoothly as possible.

Gather all necessary documents

According to the IRS, the agency closed more than 582,000 field audits in 2023. The first step in preparing involves collecting all relevant documents. The IRS may request specific items like tax returns, receipts, bank statements and other financial records.

Review tax returns thoroughly

Carefully review the tax returns for the years under audit. Understanding what the IRS may question can help prepare appropriate responses. Make sure the figures match the supporting documents.

Understand the audit notice

Read the audit notice carefully to understand what the IRS wants to examine. The notice will specify the tax year(s) under review and the items of interest. Pay close attention to deadlines and any specific instructions.

Be ready to explain discrepancies

Prepare explanations for any discrepancies or unusual items the IRS might find. Honest mistakes can happen, and having a clear, reasonable explanation can help address potential issues. If certain items on the tax return stand out, prepare to justify them with appropriate documentation and explanations.

Organize a timeline

Create a timeline of events and transactions that pertain to the audit period. This can help in understanding the sequence of financial activities and their relevance. A timeline can also assist in recalling details, providing a clearer picture during discussions with the IRS.

Practice good communication

Effective communication plays a key role during an IRS audit. Respond to IRS requests promptly and courteously. Clear and concise communication helps build a cooperative relationship with the auditor. Avoid providing more information than what the IRS asks for, as this can complicate the process.

Stay calm and composed

Maintain a calm and composed demeanor throughout the audit process. Anxiety can lead to mistakes or omissions. Staying calm helps in thinking clearly and responding accurately to questions or requests from the IRS.

Keep a copy of everything

Make copies of all documents you submit to the IRS. This ensures there is a record of everything. Keeping a detailed record can protect against future disputes or misunderstandings.

An IRS audit does not have to be a terrifying experience.