A taxpayer like Donald Trump has people on his payroll to deal with audit matters so he doesn't have to. But what if you receive an audit notice from the IRS? Getting a letter to that effect can be scary, but here's what to do.
1. Don't panic
It's natural to worry when the IRS reaches out asking to further examine your tax return. But before you let that be a source of instant anxiety, remember that often, tax audits are easily resolved.
It could be that you simply forgot to provide information when you filed your taxes, or the IRS needs clarifying or supporting documents to process your return. Don't assume the worst.
2. Read the notice carefully
Chances are, the IRS will request specific information in conjunction with its audit. Read your notice thoroughly so you understand what the agency is looking for. Don't err on the side of sending additional information outside of what's being requested -- that may only complicate matters.
3. Don't ignore that correspondence
According to a recent survey by Jackson Hewitt Tax Debt Resolution Services, among tax filers who have previously ignored an IRS notice, 32% did so because they didn't know how to respond, 32% did so because they were too overwhelmed or scared to respond, and 30% did so because they didn't have the money to pay additional taxes. Ignoring an audit notice, however, is a huge mistake, reports Mark Steber, Chief Tax Information Officer at Jackson Hewitt. Doing so could result in a scenario where the IRS comes after you for the money it thinks you owe. Or to put it another way, if you neglect to respond to an audit letter, you'll effectively forfeit the right to dispute what the IRS is asking for.
That won't happen right away. If you don't respond to an audit notice, the IRS will implement the changes it wants to make to your tax return and serve you with a 90-day notice to dispute those changes. Do nothing, and your tax debt becomes automatic. As Steber puts it:
Audits can turn into a tax debt if the taxpayer ignores the IRS requests or doesn't produce their tax records. For the average American, we see this happen when the taxpayer is overwhelmed and doesn't feel confident handling their own tax records. In these cases, its best to have a professional help out.
If you're not sure how to respond to an audit notice, call your tax preparer or find a tax professional who can jump in and assist. Also, don't assume that it's best to ignore an audit notice if you can't pay. By doing so, you'll only incur interest and penalties on the sum the IRS thinks you owe it.
"Taxpayers should know that even if they aren't able to pay immediately, there are options to resolve a tax debt," says Steber. "The worst thing to do is ignore a notice."
Tax audits can happen to anyone. You don't need to be a power player like Donald Trump to land on that dreaded list. But the way you handle an audit notice could spell the difference between getting slapped with a tax bill and penalties versus escaping relatively unscathed. Remember, too, that not all tax audits work out in the IRS's favor, so don't assume you're doomed from the start just because an audit is taking place.
The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
The business news you need
With a weekly newsletter looking back at local history.