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Tax Season Is Over as Audit Season Is Just Beginning

Tax Season Is Over as Audit Season Is Just Beginning
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By    |   Monday, 23 April 2018 05:42 PM

When it comes to taxes, all we must hope for now is to look forward to dealing with the IRS next year to file another return and not again to back up claims of deductions taken.

It was May of 2017 when I received a big envelope with my name; the dreaded return address the audit division of the IRS.

I opened the envelope to find the IRS wanted more information on almost every deduction I took in the years 2012-2015. I got seriously sick, not because I had done anything wrong but because I knew this would be a tedious process of gathering information for deductions I took years ago, and it also meant finding receipts and files of contracts with companies I had given business to back up my deductions.

I panicked I didn’t know what to do but feel sick for the rest of the night as I read further down the notice this was going to be an in-person audit. I will share my experience and steps I took to get over this event and came out alive and well on the other side.

Avoid the ostrich approach.

When you receive a notice of audit letter call the agent and give yourself time to gather information. Think of an audit as a trip to the dentist. While it isn’t something we want to get done and extremely uncomfortable; we have deal with it because ignoring the problem will snowball into something bad. Don’t bury your head in the sand and hope the IRS will go away because they will not.

Have your ducks in a row.

There is no need to hire a tax attorney. They are very costly and would only raise red flags to the internal revenue service. If you did not lie or understate your income on your tax return and you believe you have most of the documents to back up your expenses you are over reacting by hiring a tax attorney.

However, do speak a CPA to help you put all your documents in order and track all paper trails to expenses you have. There may have been deductions you forgot to take and now would be a good time to bring proof that as a great citizen you overpaid uncle Sam and maybe you are owed money.

Don’t let the dog eat your homework.

The sooner you deal with the issue the sooner you can be on your way to taking this heavy weight off your shoulders. Call the IRS and schedule an appointment where you will have time to gather all your bank statements, credit card statements, invoices and receipts to back up your claims. I struck gold when I found a calendar in an old phone and being able to write down who I saw for travel expenses and who I met for a business dinner or lunch. Buying lunch for your employees so they can work through lunch or dinner and be more productive is a deduction that I did not take and was able to take advantage of and increase my deductions. It is wise to keep an open line of communication with the agent If you need more time to gather information.

Once you are ready for the big day keep in mind the IRS agents uphold the law and they are not out to get you. The IRS trusts but likes to verify to make sure you are following the law when it comes to taxes. Think of an audit as a traffic stop and the officer just wanting to make sure you are wearing your seat belt and driving the speed limit.

As for my audit, three months after spending many days and hours piecing together all my expenses line by line with a description of the deduction I took. My CPA and I made our way to the appointment. The agent on my case was very well spoken and respectful. She took the time to listen and understand my business and how I brought in business.

We began the audit and she went line by line in each category, all the preparation paid off. Do not ask for any favors, do not be disrespectful and if there is something that you do not agree on; you can always appeal. Remember the agent has a life of their own and are also working to put food on the table. They are doing their job.

This audit was more invasive and uncomfortable than a visit to the dentist and there were more files that I had to send after my examination but recently I received a letter stating that everything was in order and I do no owe any additional tax.

My best advice to you is to always keep your filings honest. The government has a super computer that compares your return to people and businesses in the same line of work and if there are outliers in statistics your return will probably get flagged. But do hire a great CPA that is familiar with the tax code to prepare your returns. Even if it is for a simple W2. Using credit cards for expenses is a great way to earn points, build up your credit and retain record of expenses.

Armando Soto is a sophisticated investor and corporate adviser. Currently he is a managing partner at Zelphinium, LLC a Corporate finance consultant for corporations, single family offices and institutional investors. Follow him on Twitter @rmandoSoto

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ArmandoSoto
When it comes to taxes, all we must hope for now is to look forward to dealing with the IRS next year to file another return and not again to back up claims of deductions taken.
tax, season, audit, season
913
2018-42-23
Monday, 23 April 2018 05:42 PM
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