Money Matters: Prepare to conquer your audit fears
It's probably the most dreaded word when it comes to taxes, but the truth is an audit may be as simple as a letter in the mail. YNN's Tara Lynn Wagner filed the following report.
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Let's be honest. Unless it contains a check, no one wants to get a letter from the IRS.
"I think if we use the term CIA, FBI, IRS, most people, they start to panic when they hear the word IRS," says Certified Public Accountant John Vento.
It isn't an uncommon occurrence. If you make under $200,000, your odds of being audited are about one in 100. Some audits are the result of a red flag -- items or amounts that stand out in the IRS's sea of statistics.
"If the average person, say, makes a five percent donation to charity, and your charities are 10 or 15 percent, well that raises a little red flag," Vento says.
Which isn't to say the IRS will immediately show up at your door.
"No, that's not what happens. Most people will find out through correspondence in the mail," says IRS Spokeswoman Dianne Besunder.
That letter will specify what items the IRS is looking into and what kind of proof you will need to provide.
"I had copies of the checkbooks, copies of the checks. If they used a credit card, I had the credit card statements," explains Jay Safier of Rosen Seymour Shapss Martin & Co.
In many cases these documents can simply be mailed back to the IRS, case closed. However, the other type of audit - a random audit - can be far more complicated.
"So the government for no good reason will just pick somebody out of thin air and say, 'Let's audit every line item,'" says Vento.
CPA John Vento says the point of a random audit is to gather those statistics that will help establish next year's norms. It's a long process that looks at every single item, line by line. So what do you do when that letter arrives? Hide under the bed? Not exactly.
Instead, start building your case. Work with your tax preparer to make sure everything's in order before you head to your personal interview with the auditor. Your preparer may even answer the audit for you or at least with you, but keep in mind preparing for an audit can take a dozen or more hours, so these services probably weren't built into your original preparation fee.
"You can't, because you never know what they are going to ask, you don't know how much time they need," Safier says.
For more information on audits and your rights as a taxpayer, visit irsvideos.gov/audit.