1. Home
  2.  | 
  3. Tax Audits
  4.  | What to do if you’re worried about a tax audit

What to do if you’re worried about a tax audit

On Behalf of | Feb 10, 2022 | Tax Audits

For many people, the concept of a tax audit is an intimidating and nebulous thing. They might only rely on anecdotal stories and the portrayal of an audit in popular movies and television shows for information. While there are significant penalties associated with a tax audit, there are numerous steps people can take to ensure they are prepared for such an eventuality.

The IRS could trigger an audit based on numerous factors including a conflict in reported income versus W-2s, anomalous deductions or complex transactions such as those involving cryptocurrency. While most people do not often work through complex tax return paperwork, there are still steps they can take to prepare for an audit, including:

  • Maintain tax records for at least three years: While the advice might vary depending on your income, occupation or possibility for an audit, it is wise to keep at least your last three filed returns packed away and organized for quick reference. The IRS can look back seven years to compile data if they so choose, so many people elect to maintain that level of record keeping.
  • Save checkbook registers or carbons: While many people elect to pay bills electronically, a significant number of individuals still rely on writing checks. Whether you keep your detailed checkbook register or duplicate checks, it is important to save them alongside your tax records.
  • Keep receipts and notes as evidence for deductible information: Many people choose an accordion file while others find a journal helpful, it is wise to keep any receipt related to a deduction on your tax return.
  • Keep information in a single location: Should an audit become a reality, individuals often struggle to track down the information that is necessary. From keeping boxes of receipts in the attic, previous tax returns in a filing cabinet and home mortgage statements with the title in a box in the garage, individuals could find it a challenge to locate and prepare their information. It is wise to keep everything in a single location.

While information maintenance won’t prevent an IRS audit from happening, it will likely dramatically reduce the amount of stress an individual feels in preparation. Keeping this information organized and accessible means it will be easier to prepare any data the IRS needs to examine.