INTERNAL REVENUE SERVICES AUDIT REPRESENTATION
An IRS audit is a review of an organization or individual accounts and financial information to ensure information is reported correctly according to tax laws and verify the reported amount of tax is correct.
RC Accountants, provides reassurance when it comes to IRS reviews and audits. Audit activity includes any audit, enquiry, investigation or review that is instigated by IRS to ensure business and taxpayer compliance with various tax and legislative requirements such as Personal Tax, Business Audit, Payroll Audits, Sales Tax and Trust Audits.
WHY IRS AUDITS PEOPLE?
- DATA ENTRY ERRORS – An audit can be triggered by simple errors like entering your social security number incorrectly or misspelling your name and also making math errors is another trigger.
- FAILING TO REPORT SOME INCOME – Take note that IRS compares your income from year to year. A noticeable discrepancy without supporting documents
- OVERSTATING DEDUCTIONS – If you made contributions, you are eligible for some deductions. Do not report false donations and if you don’t have proper documentation to prove the validity of your contribution, don’t claim it. Make sure all business expenses make sense and must be accurate.
- SELF-EMPLOYMENT – Unfortunately, self-employed tends to be scrutinize by the IRS, particularly if you fail to report four years of your profit. Business with excessive losses may deemed to be a hobby and the deductions will be disallowed.
- CLAIMING EARNED INCOME CREDIT – The Earned Income Tax Credit (EITC) is designed for those with very low income. It is bound by numerous but definite rules of when to be claimed. For those have the lowest EITC or those who are not claiming qualifying child – they are not qualify for the credit.
- DISCREPANCY BETWEEN INDIVIDUAL TAXPAYER AND CORPORATE FILING ASSOCIATED WITH TAXPAYER –
- WRONG FILING STATUS – The filing status is important because an individual tax bracket is determined by marital status, occupation, number of children and several other factors. You must file your status honestly because this determines the amount that you are going to pay based your range of income.
- CLAIMING NON-EXISTENT DEPENDENTS – Claiming children you don’t have or an honest mistake – split household claiming dependent children on both returns even though they did not jointly file. These can make child custody creates confusion.
DOCUMENTS NEEDED FOR AN IRS AUDIT
In general, you should keep all back ups for personal return to used as supporting documents to claim credits, deductions or other line items on your tax return that you should hold on to. Make sure you have the right facts and know what your taxpayer rights are.
- BILLS – include the name of the person or organization receiving payments, the type of service and dates you paid them
- RECEIPTS – present these by date with notes on what they were for and how the receipt relates to your business
- TICKETS – label travel tickets with the business purpose for the trip and group them with other receipts from the same trip. Lottery tickets help provide proof or loss.
- LEGAL PAPERS – include a description of what the case was about, when it happened and how it relates to your business, credit or deduction, examples:
- Divorce settlement
- Criminal settlements including custody
- Tax preparation
- Property acquisition
- CANCELED CHECKS – group these with copies of the bills they paid and any applicable employer reimbursement
- LOAN AGREEMENTS – include a copy of the original loan with the following:
- Name of borrowers
- Location of property
- Financial institution making the loan
- Amount borrowed
- Terms (numbers of month to pay)
- Settlement sheet
- If the loan is from institution, include an end of tax year statement indicating interest paid
- If the loan was not from an institution, provide a statement from the payee indicating the interest paid that year as well as the payee’s address and Social Security number
- Provide a break-down of how you used the money
- LOGS AND DIARIES – these might show the dates and locations of your travel as well as the business purpose and mileage. These might also show gambling winnings and losses as well as dates and locations, these might also show job-hunting activity and expenses
- EMPLOYMENT RECORDS – these might include uniform, policies or dress codes, continued education requirements, W-2 reimbursement statement or policies
- MEDICAL AND DENTAL RECORDS
- A copy of a handbook or other statements showing benefit and reimbursement policies
- Medical savings account statements
- Contract to attend care Physical statements
- Capital improvement records for medical purposes including appraisal of the property before and after the improvements
- THEFT OR LOSS RECORDS
- Brief explanation of the loss
- Insurance reports detailing the nature of loss and damage
- Photos or video showing the extent of damage (if available)
- If not insured, copies of fire department or police report on the loss, theft or accident
- Appraisal from qualified adjust or showing fair market value of the property before and after as well as an estimate of the damage
- SCHEDULE K-1 – These are used to report each shareholder’s share income, losses, deductions and credits when an S corporation files its annual tax return
WHY CHOOSE RC ACCOUNTANT?
You don’t need to understand every detail about the auditing procedure to be well prepared for a tax audit. Just have the right work papers, and financial reporting backup documentations. Most importantly, hold on to those annual tax returns! You will need to know your taxable income for each year. The smartest thing you can do if you are concerned about an upcoming audit with an IRS agent is to have your own representation. Have a trusted advisor on your side – one who is professional, responsive, and experienced with IRS field audits. Hire a tax accountant to help you complete your income tax return each year. But, be sure to use someone who will deliver the highest quality of work on your behalf. At RC Accountants we can represent you in an audit; just schedule a free tax consultation with us, so we can help you get started. Learn more about tax consultations today, so you can determine how we can help you.