First off – congratulations to the Kansas City Chiefs. From all accounts, it was a pretty epic game. And, of course, there are those commercials. Many great ones, but one quick note about one of, well, “professional interest” for me.
The TurboTax campaign (“Don’t do your taxes”).
You might not have seen them, but they are, in fact, BEAUTIFUL commercials (Intuit seems to have upped their design chops – which, when you’re a multi-billion, multinational conglomerate, should be table stakes).
But let me ask you this: does it give you confidence to entrust your (increasingly complex) taxes to a nameless, faceless “CPA” cheaply employed by Intuit to work for them? It’s almost a worse pitch than entrusting it to a software program.
They’ve figured out that a “software” solution isn’t ideal for something so sensitive and delicate as your taxes … but their new answer seems to involve you trusting THEM to pick somebody for you. And it would be someone who isn’t competent enough to establish their own practice, and needs help from Intuit to do so.
It’s a bit of a scary proposition, yes?
And speaking of scary … for many, almost nothing is scarier than getting an audit notice from the big bad IRS.
Not scary for us here at MJM Income Tax … but scary for normal NW Tucson folk. Truthfully, the total number of IRS audits has been on the low end of the spectrum the last ten years due to staffing and funding issues.
But… after Biden’s Inflation Reduction Act rolled out last summer, everyone’s been on high alert about increased enforcement measures (believe me, I heard from plenty of people worried about that) knowing that over half of the 80 billion dollar cash infusion to the IRS from said bill is allotted for that very thing.
So, is the newer cashed-up, staffed-up IRS going to come after your tax dollars with an army of enforcers? Well, sort of – but also, not exactly. Enforcement funds will go to many things like new technologies and increased legal support for IRS investigations and new staff hiring doesn’t mean just agents. But, yes, audits will increase.
Where those audits will focus has yet to be seen — Middle-class taxpayers? High-net worth individuals? Corporations? We’ll see…
But that’s why I’m talking today about preparing for an audit, to make sure you’re primed for whatever gets thrown your way and so you can be confident if that letter shows up in your mailbox.
Your first line of defense in the whole tax standing thing, is making sure things are done correctly the first time and getting it done on time. Though April is still a ways out, it’ll be here in a flash… which means you need to grab a time so we can get your tax filing signed, sealed, and submitted (and not by a randomly-selected drone). Let’s get something scheduled:
Alright, finally, let’s take a look at how to prepare for an audit…
How NW Tucson Filers Can Prepare for an IRS Audit
“The lucky man is he who knows how much to leave to chance.” – C.S. Forester
Some say IRS audits are on the rise for NW Tucson residents; some say they’re rarer than ever. The Government Accountability Office, one of Uncle Sam’s agencies that keeps watch over the IRS, recently reported that audit rates dropped a lot in the past decade.
But you might have heard (correctly) that the IRS got a big transfusion of funding last summer from Capitol Hill, and they’ve promised to use part of that money to beef up compliance — and for some people, that’s going to mean more audits.
The potential of an IRS audit is never something to take lightly.
Good question. Don’t panic.
An IRS audit can be random, picked by a computer. Other reasons include “significant inconsistencies” between your past tax returns and your most current one, miscalculated or weirdly high deductions, foreign accounts, or declaring a hobby as a business … to name a few.
The government generally has three years to pull your tax return for an IRS audit. Most — not all — are done completely by mail. Most are wrapped up inside a year.
Part of preparation is knowing as much as you can about what you’re getting into — and in this case, that starts with knowing how the IRS will and won’t contact you.
They generally use mail first (not social media or email, and not the phone). If somebody calls threatening you with an IRS audit and quick action if you don’t comply, hang up and call us, the police, or the IRS itself.
The IRS manages audits either by mail or through an in-person interview. In-person audits may be at an IRS office or at your home, place of business, or your tax preparer’s office. The IRS will give you contact info and instructions in the letter.
You’ll likely need your paystubs, W-2s, receipts and bills, credit card and bank statements, canceled checks, loan papers, medical and insurance records, plus your previous returns and all their records. This is a partial list, and some digital records might be okay. (Check with us if you have questions.) If you have too many books or records to mail, you can ask for a face-to-face audit.
Again, they’ll let you know what they want and give you time to assemble it.
Numero uno: Do not ignore the letter. The IRS isn’t going to evaporate, and your problem with them isn’t, either. Read the notice. Read it again. Make certain you know what they want of you.
Your best response depends on the type of audit. Mail-only audits, for instance, may mean you just need to collect the few items mentioned on the notice or pay/contest the amount owed. In-person audits may be tougher, requiring more documents and questions — an advocate experienced in tax (such as us) coming with you is also a great idea.
Don’t reply to the notice unless the IRS asks you to. If the notice mentions a change or correction on one of your previous returns, compare what the IRS claims with your copy of the right return. Call the phone number on the top of the notice if you have questions, and when you call have a copy of your tax return and the notice with you and take down the name and information of the IRS agent you speak with.
If you don’t agree with what the notice claims, mail a letter to the IRS. (We can help you write it.) The notice will have the address where to write. Use a tracking system such as USPS Priority or Certified Mail. Give the IRS a month to get back to you.
KEEP COPIES OF EVERYTHING.
If you have to meet the government face to face, bring these:
- a copy of your IRS audit letter;
- information and documents;
- a copy of the tax return in question and copies of your returns from two years before the return in question;
- a copy of the most recent year’s return (if it’s not the return being audited);
- a copy of any documentation you gave to your tax preparer;
- documents that show the results of any prior audits;
- and copies of any other IRS letters or notices you got for the tax year in question.
Face to face, they’ll probably want to know about funny deductions or unreported income, as well as ask broader questions about your job, family, and life in general for an entire tax year. You may also get an Information Document Request. Respond to it by the deadline.
If you don’t agree?
The IRS will eventually close the audit, sending you a written report of their findings and determination. You have 30 days to appeal. Don’t waste that time — as you’ve learned, take every interaction with the IRS very seriously.
We’re always here, happy to be your advocate through every step of the process.
Looking out for you,
MJM Income Tax