How to Prepare for an IRS Audit: A Step-by-Step Guide

While the chances of facing an IRS audit are low, it’s always a good idea to be prepared. If your tax return is selected for audit, having a proactive plan can help you navigate the process smoothly and efficiently. Here’s a detailed guide to preparing for a potential IRS audit so that you are ready in case the IRS comes knocking.

Keep Your Tax Records Organized

If you end up facing an IRS audit, the key thing is to stay organized and be able to provide supporting documents for what is being reported on your tax return. Items on your tax return include income, deductions, credits, and other financial claims. Some examples of the documents include pay stubs, receipts, bank statements, invoices, medical bills, and charitable donation receipts. I

It’s recommended to keep records for at least three years from the date of your tax return filing. This is the typical time frame within which the IRS can audit you. Keeping these documents accessible—whether in a secure digital format or a physical filing system—will save you time if you ever need to produce them. Make sure your system is easy to use, so you can quickly find the documents the IRS requests.

Additionally, if you’ve filed business returns, ensure you have detailed records for any business-related expenses, such as travel, meals, and supplies. Inconsistent reporting or lack of substantiation is a common trigger for audits.

Review Your Tax Return for Potential Red Flags

Check that your income from all sources (including side jobs or freelance work) is correctly reported. Compare the income on your tax return with the Form 1099s and W-2s you received. Inaccurate income reporting is one of the most common reasons for audits. Additionally, be mindful of claiming deductions that are unusually high compared to your income, like home office deductions or business expenses. While these are legitimate, they must be supported by proper documentation.

Lastly, if you’re claiming tax credits, such as the Earned Income Tax Credit (EITC) or Child Tax Credit, make sure you meet all eligibility requirements. In some cases, the IRS may audit to verify your eligibility for certain credits.

Know Your Rights and the Audit Process

The IRS offers different types of audits, including correspondence audits (where you mail in the documents), office audits (where you meet an IRS agent in person), and field audits (where an agent visits your home or business). Know which type of audit applies to you and prepare accordingly.

You also have the right to representation during the audit. If you choose, you can authorize an Enrolled Agent (EA), like myself, to represent you and handle all communications with the IRS on your behalf. This can significantly reduce stress and ensure that you have a tax expert guiding you through the process.

Additionally, you have the right to challenge any IRS findings. If you disagree with the results of your audit, you can appeal the decision. In extreme cases, you can take the matter to Tax Court. However, it’s generally best to work with an EA to address any discrepancies before reaching this point.

While the idea of an IRS audit can be intimidating, knowing how to prepare and what to expect can help you navigate the process with confidence. If you need assistance gathering documentation, reviewing your return, or representing you in an audit, feel free to reach out to me at info@mkhstaxgroup.com.