How to Minimize Tax Audit ProblemsAdvertorial: CFO of the Year Awards Supplement Monday, March 19, 2012
Representing yourself should the Internal Revenue Service question your tax return is seldom a good idea. You may not be fully aware of your rights or options.
That’s one reason why you should seek the assistance of a certified public accountant to prepare your taxes. CPAs are authorized to represent their clients during an IRS audit. They can help you collect your tax records, review the records with the IRS agent and answer his or her questions.
Ideally, of course, you want to avoid a tax audit. While no one can guarantee that the IRS will never audit your taxes, a CPA can help minimize the chance, find the maximum legal deductions and credits, and make sure you have the records to back your claims.
You, the taxpayer; however, are ultimately responsible for ensuring that your tax filings are accurate. Here are some steps you can take to reduce the likelihood of an audit:
- Routinely organize your records. Collecting receipts and other tax-relevant items over a year and then presenting them in a jumble to your CPA can cost you. The CPA likely will charge you to organize, categorize and evaluate all the paperwork. Also, jumbled records often are incomplete. You may be missing a possible deduction because you misplaced or forgot a receipt. Developing a weekly or monthly routine to track your expenses and donations and setting aside critical receipts in a designated tax file can result in savings come tax time.
- Retain important records. Generally, the IRS has up to three years from the time you file income taxes to audit you. But there are exceptions. For example, if you file a false return for any year, the IRS can audit that return regardless of when you submitted it. The IRS advises taxpayers to keep copies of filed tax returns indefinitely and copies of employment tax records for at least four years.
- Be candid with your CPA. Your CPA’s counsel is only as good as the information you provide. If, for example, you have not reported income for prior years, tell your CPA. He or she can then work with the IRS to minimize any penalties and set up a reasonable schedule for payment of back taxes.
CalCPA has more than 38,000 members and its San Diego Chapter has more than 3,000 members. In addition to preparing taxes for individuals and businesses, members also provide such services as auditing, business consulting, personal financial planning and litigation consulting. You can find a CPA near you by using CalCPA’s Find a CPA service at www.calcpa.org/.