I Am Self Emplyed and Getting Audited, What to Do Now?????

Girl - call Jerry Roebuck @ National Business Consultants ###-###-#### - he is the bomb!!!! He can help! He is in Pasadena...tell him An'drea Boren sent you...he will take care of you - I promise!

P.,

As many people have said, the first thing to do is calm down and line up your ducks.

Next, if you used a paid preparer, contact him/her immediately. Many of us who are reputable will go to the audit with you as well as provide assistance in getting ready and organized.

A good way to organize your backup/receipts is to put them in the order in which they appear on your Schedule C. (The same goes for the 1040, starting with any W-2 income, down through that form, putting your Schedule C information where that line falls into the 1040) That is to say, if you have 1099's for your income, put those first, then go down the schedule C, and put your expense receipts in order. That way, whatever they are questioning, you will have easy access to your backup.

-If you claimed mileage on your Schedule C, HAVE A CALENDAR with the daily miles logged on it.

-If you are missing any documentation, there is a good chance that the deductions will be disallowed, and you will have to pay tax (plus P&I) on the disallowed expenses.

-If you have 1099's for income, be sure that the amount is included in the income portion of your Schedule C. (There is no itemization here to prove that you did or didn't document the 1099 income)

When it comes to bringing additional years' returns, there are a couple schools of thought. Normally, when they audit your 2006 return, they will request that you also bring the 2005 and 2004, or the surrounding years. (2005 and 2007) One school of thought is that if they want to look at those other years, they have them on file, they can get them themselves. The problem with this is that it can be viewed as antagonistic, and make the auditor try harder to find issues. I know that this is not fair, but they are human, and humans don't like to be thwarted. My mother in law who is a long-time EA and has been to many audits both with our companies and other firms, believes firmly in bringing what they request.

During the audit, stay focused. If your Schedule C is being audited, try not to let the conversation wander to other parts of the return. If you took office in home expenses though, there is a good chance that the conversation will spill over to your Schedule A - to be sure that you didn't "double dip" on personal versus business expenses.

During the audit, don't ramble. Silence is golden, even if uncomfortable. Interviewers, including auditors and media personnel the world over use silence as a tool. People feel a need to fill it. Don't feel the need. Satisfy the question, then hush. There's no need to send him/her scrambling to other parts of the return.

I don't own any locations where you are (assuming that it's Katy) but were you located near one of my offices, I would send you there. We would be happy to help you, even though we had not prepared your return, because we would hope that you'd fall in love with us and become a loyal client forever. :)

Best of luck to you,
B.

I have read that you do not offer any prior years tax
returns that are not being questioned. I can't remember
why, but you are only responsible for the years in question.
Lots of good luck.

Don't be nervous. Everything you have claimed for deductions you need to have proof. If you claim medical, organize all your receipts. Look at your tax return and get all the back up you claimed on your return. Some of IRS auditors are trained students.

My daughter is an accountant and attends many audits and one thing I have learned from her is to be organized. I know you have gotten a lot of good advise from this site but one person said dump it on their desk and let them figure it out as it was their job. That is not true. It is not their job to figure out your mess, it is your job to prove what you have. If you go in organized you will certainly looked better that you did nothing wrong vs. you are trying to hide something and/or don't even know what you are doing if you are disorganized. You only provide what they are questioning and nothing more. They are right that you do not ramble and talk to much as they will certainly pick up on something you may say. It is best to hire an accountant and have them go in your place or with you but they would need to get your information and be prepared. If an accountant did your tax return then you do need to contact them and let them know so they can prepare your audit. They are right that not all IRS people are horrible, but let's remember you are being audited. Some red flag popped up for some reason and they are going to find it unless you can prove it all to them. It isn't as bad as you might think but I can certainly understand you being nervous. I for one would never do it myself since you state you are unorganized and I would be afraid I would fumble something up and then they charge me all these back taxes. Good Luck to you.

First and foremost do not go yourself. Send someone in your place, hire an accountant just for the representation. We tend to answer more than we need to. I worked for H&R Block and that we learned.
It would help if you organized your receipts according to your tax return the way they are in your Schedule C. All supplies together, repairs, taxes, etc. Another thing we learned is not to be afraid of IRS don't let them intimidate you however take my advice and send someone to represent you.

Buy the book "Home Based Business Tax Savings" by Ron Muellor. You can order it from his website: http://www.homebusinesstaxsavings.com/
He also has organizational tools and you will learn about all the legal tax deductions you are entitled to. Who knows, maybe you'll find out you had more deductions than you thought and they will have to give you a refund. His book not only explains what is deductable, but also tells you where the rule is in the tax code. This might be necessary if the auditor tries to disallow something that you are entitled to. Don't assume they know what they are talking about or that they are right. Good luck!

hire a cpa!!!!!!!!! it will cost you, but save yourself the headache and possible issues. we went through this recently with the business we own. the cpa can honestly respond to some questions "i don't know the answer" when what you say may cause you more headaches... also they will know what legally is allowed/not allowed. there is a limit of how far they can go back in time, but what they publish online isn't the same. good luck!

Hi P.,

Did you have a CPA do your taxes? If so- I would suggest talking to him/her and allowing them to represent you at the meeting with the tax auditor. It will be much less stressful for you-and the CPA will probably handle the situation and not be nervous like I am sure you would be. If an amendment needs to be done- then they will discuss it and then you provide anything that they ask for. The CPA will charge you of course- but it is money well spent- I promise.

**also- if you do have deductions you can not support with receipts or documentation- you will just have to amend your taxes for that year. Our former guy had put a ridiculous amount for "uniforms" and we didn't catch it. It will be ok :) **

Hope this helps. Message me if you have any more questions. :) I have been there. My former CPA was audited-a few years ago and therefore so were most of his clients!

I have read that you should find out exactly what they are questioning and only take that information with you. This prevents them from doing a witch hunt to try and find something to get you on. Or better yet, if you have a contact number of who will be conducting the audit, ask if you can fax them the necessary documentation. Politely remind them that you are a small independent business women and you would like to handle this matter in the quickest way possible so that you can run your business.

I would also google search "surviving a tax audit" or "taxpayer's rights during an audit" to get more information.

The best thing is to be prepared and know that you have documentation to back up your claims. If you don't have documentation or took deductions that you can't back up, then you have a whole different problem.

IT is good that you have all your records. Get them in order as best you can and take them with you. My father-in-law, who was not in business, took in two boxes and they only checked one thing. Our friend who is in business took in everything and when they saw his daily record book of miles traveled and the listing of what deliveries he had made, trips to the PO, etc., they figured he cold back up everything else. They didn't look but he was prepared in case they wanted to see it. He keeps each months records in a separate manila folder, clips expenses on one side and income on the other. It is the best system I have seen. He is very consistent. At the end of each month, he makes a summary. At years end, it is all there.

take what you have and dump it onto the table and let them do all the sorting.
It's their job :)

I once made an error of something on taxes in a previous year...i had the info and so i made an amended return. Cool thing was I just called them and they were fine with just taking the numbers down over the phone right then - and that was it! Maybe when you begin to sort through you will find missing documents? (I just started my own business stuff too and I am going very slowly and being uber-cautious about my organization, or general lack thereof.)

A member of my family is awesome with taxes and LOVES to be audited just so he can show up with a case load to hand over :) and he and i giggle about it all the time...Don't worry and no need to be intimidated: These gov't people are supposed to work for you!! I concur with the statement that Silence is Golden. Keep it quiet and stand your ground with the suits :)

Blessings on all of it!

Definitely hire a CPA if you don't have one. Never deal with the IRS directly. They will not work in your favor.

P.,

If you use an accountant, contact them. If your return was done by you, gather your paperwork, and call the IRS to see if you need to make an appointment. You may have to send in the information or make an appointment. It is time consuming working with the IRS. I had to prove that they had incorrect information last year for a reporting period in 2004. I worked with my bookkeeper for 4 hours and sent two letters and cleared everything with them a few months later. Hang in there.

Relax first of all. The IRS isn't always as awful as people think. Next, organize your papers to substantiate and verify the numbers you put on your 1040. As long as you can verify everything, you don't need to worry. When the auditor asks to see your backup for a specific category, you'll be prepared to show it. I'm in El Paso and can help if you need, just contact me. J. Mellem

If you know that all of your business is on the "up and up" then you truly have nothing to worry about. Take them the documents they requested, but you don't get extra points if it nice and organized, just make sure they have it all. When I was audited the IRS guy used a conference room at my accountants office (so I can't answer the tax office question). However, I can say that everything worked out fine for me, and was pretty painless, once I got over being so nervous. Take a deep "breaf" as my 3 year old says...it will be okay. Good luck.