How to Handle an Income Tax Audit Well

by Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com

The last thing anyone would want after filing an income tax return is to have it audited. Income tax audits from the IRS are frustrating: you are asked to provide a lot of information and records, there is the fear that the IRS will reject your claims, as well as questions on how to respond to the IRS letter; whether or not professional assistance is necessary; how much a professional accountant for freelancers would charge for audit representation, and many others.

So how can an income tax audit be handled sensibly?

If you go by the Wikipedia definition of audit representation, it says, “Tax audit representation, also called audit defense, is a service in which a tax or legal professional stands in on behalf of a taxpayer (an individual or legal entity) during an Internal Revenue Service (IRS) or state income tax audit.”

Considering this definition, the most sensible way to handle an audit is to hire a tax professional. However, not all income tax audits need audit representation. Sometimes, the IRS is simply seeking an explanation or asking for proof for the business expense you wrote off on your tax form. When this happens, all you have to do is send the required information.

However, if the IRS is asking you to meet a tax agent to discuss your return, or you do not have the records for the business expenses you deducted on your return, then it is best to hire a tax professional for your audit representation.

Some Tips to Handle Tax Audits

Respond to the IRS Letter

Many people think that ignoring the letter the IRS sent you is an easy way out. However, it is not. If the IRS has audited your return, then most of the time, there is something on your return that the IRS is not happy about or has found unsatisfactory. If it is a simple letter asking you to share a business expense receipt, then you can send the required documents. But if it is something serious like unreported income or unqualified business deductions, then it is best for you to request an extension and hire a professional.

Consult with Tax Professionals

Consult with a good tax professional that is an expert in tax preparation for entrepreneurs and small businesses, because businesses’ income tax returns are the ones that are usually audited. The IRS does not have the resources and the time to audit salaried people’s tax returns on minuscule issues.

Play the Negotiation Card

Despite your audit representation, if you are found guilty, then negotiate and appeal to the IRS agent in order to reduce your penalties and tax liabilities. Your tax professional can actually negotiate on your behalf. IRS agents also look to cut a deal in order to avoid dragging out the case.

It is recommended by experts that, regardless of the severity of the issue, you should consult with a tax professional in case your tax return is audited.