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Preparing for a tax audit

| Aug 3, 2017 | audits

Taxpayers in Maryland might find the prospect of a tax audit to be a cause for panic. However, experts recommend some strategies to make an audit easier, and they say that preparation is the key to avoiding a negative experience with the IRS.

Anyone can be audited by the IRS, but when it comes to business audits, small business and sole proprietorships are audited more often than large companies. One tax adviser says that an audit can actually be a good learning experience and good for a small business because it can teach the owner about financial organization and strengthen the company.

When a person or company is being audited, they have a right to understand the reason they were chosen, and it is okay to ask the IRS that question. It is also recommended to have professional representation in an audit by a lawyer or an accountant.

Tax returns being audited will be checked for proof of everything they contain, so having records available that back up every expense and deduction is a good idea. Credit card statements are generally not considered valid proof of expenses, so it is better to have receipts.

Someone being audited could also benefit from reviewing the tax code to understand any questionable deductions or expenses the auditor might point out. Having records that are presented in an organized manner can also help to simplify the audit process.

It might not occur to someone who is facing a tax audit that they could hire a lawyer to represent them. An individual or a small business owner who chooses to have a lawyer represent them at the audit could avoid saying something or making a mistake that could be costly. An attorney could also work with their client’s tax professional towards a successful audit outcome for the client.