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How do I Prepare for a Tax Audit?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2016
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    Conjecture Corporation
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A tax audit can be a stressful and frightening event for many people; even if a person has done his taxes correctly and conscientiously, receiving notification of an audit can be nerve wracking. Properly preparing for a tax audit can help ease anxiety and reassure an auditor that a person is ready and willing to cooperate. There are many steps that can help a person or business prepare for an audit.

There are generally two types of audits: paper and in-person. A paper audit is simply a notification asking for documentation or clarification of something stated on a tax form. Generally the best way to get rid of this problem is to provide the information promptly. Ignoring a paper audit is a surefire way to bring on an in-person audit, which is usually far more serious.

It may or may not be beneficial to consult a tax attorney if an audit is planned. People with relatively simple financial information may be able to navigate through a tax audit safely. If taxes are complicated, however, an experienced tax attorney may be able to provide guidance, help with organization, come to meetings with the auditor, and let a person being audited know what he or she should prepare. If an accountant or tax professional prepared tax forms for a person or business, it may be important to get him or her involved in the process as well.

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There are many documents that should be on hand for a tax audit. These should include all records of expenditures and income, receipts for any items that were used as tax deductions, bank and credit card statements, and tax records from previous years. Experts recommend organizing these documents by date and by type, so that they are easy to pull up as needed. If documentation is missing, try conscientiously to get new copies; banks and credit card companies will usually provide copies of old statements, but it may be more difficult to get copies of receipts for cash transactions or charitable donations.

Some experts recommend preparing both personal and business information for a tax audit, even if only one area is being questioned. This will show that a person is engaging in total transparency, and can sometimes prove quite helpful. If personal receipts help validate or clarify a business situation that an auditor is questioning, it helps to have this information nearby.

Experts strongly recommend avoiding being rude, argumentative, or lying during a tax audit. Not only is this behavior likely to make the process more difficult for everyone, it may actually harm a taxpayer's case. On the other hand, it is important to be clear and stand ground on issues; if a tax auditor is unfairly insinuating that a person is lying or engaging in illegal behavior, this is inappropriate behavior that can be reported to his or her boss.

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