Monthly Archive: May 2012

IRS Audits Are Easy To Survive

IRS Audits are easy to survive.  Ok, before you all shoot me, I want to prevent you from being shot.  Let’s go over a few basics about the need for good books and records you prepare prior to filing a tax return so you can wear a bulletproof vest and see for yourself how easy it is to survive an IRS audit.

If you think of an IRS audit as an attempt to shoot through your bullet proof vest, you will understand how important good books and records become for you and your family to shield you from harm.  Good books and records extemporaneously prepared prior to filing a tax return are essential to have during an IRS audit.   In fact, I promise you that IRS agents will be impressed and pleasantly surprised if you provide the government good books and records.    It is only with good books and records that you can wear a bullet proof vest with confidence. As an example of how easy and effective bulletproofing is during an IRS audit, we are going to take two very common deductions that cause all sorts of trouble unless there is adequate bulletproofing  before the tax return is filed.

The first is “charity deductions”.  For the taxpayer who has W2 earnings and who itemizes on their annual 1040 tax return, a simple accounting system like QuickBooks or Quicken will be very helpful.   For example, the taxpayer can prior to the audit prepare a profit and loss statement for her personal tax return for the year in question.   When the IRS agent asks the taxpayer for back up for charity deductions, one double-click of that category on the P&L and every charitable deduction will be listed for the year in date order.  The taxpayer then attaches all the letters from the charitable organizations he has received prior to filing his tax return to the print out and simply hands this package to the IRS agent.   The taxpayer is fully bulletproofed and can relax!

A second example for a similarly situated taxpayer of a deduction that always causes trouble during an audit is “unreimbursed business expense”. But this deduction is also easy to bulletproof as follows:  Simply double-click that category on the P&L and every unreimbursed expense will appear.  Attach to that print out a letter from your boss on company stationery received by you prior to filing your tax return certifying that all these specific expenses were necessary as a condition of employment AND were not reimbursed by your employer.   You can lighten up, you are fully bulletproofed.

For those of you who say “I’ll just wait to get audited and then I will deal with it then….perhaps I will never get audited” I say to you don’t play the audit lottery.  Many audits commence years after the return is filed.   It is much easier to bullet proof your family with a sound structure of extemporaneously prepared books and records before you file that tax return.  Without good books and records you will lose more than sleep if you should get audited, as there are substantial penalties and interest for any deductions that are disallowed.   So do yourself a favor and make sure you bulletproof your family with a good financial structure before that tax return is filed.  Make sure you are bulletproofed for each expense you deduct on your tax return BEFORE your return is filed. Well prepared and bulletproofed you will soon realize that an IRS audit is indeed easy to survive.