While your chances of being audited are slim, the IRS does go after people.  According to a reliable source, there is a 1% chance that you will be audited.  However, if you brought in more than $200,000 in 2013, your chances jump to around 3% and then increase to about 10% if you made more than a million.  Pretty high, right?

What the computers are looking for are red flags.  Details written in taxes and write-offs give large hints to the IRS.  They look for things that are out of the ordinary.  Receiving a letter from the IRS may be one of the most dreadful things to happen.  So, it is important to keep informed of what you are up against.

Here are the steps to take if you receive a letter from the IRS.

1. Ask questions.  First of all, don’t panic.  Respond back to your auditor initially, enough to help you get organized.  The IRS is normally supposed to tell you why you were selected for an audit. Sometimes, the IRS is just looking for more information.  Sometimes, there are questions on part of your tax return and not the whole thing.  Keep in mind, the IRS may question returns filed by the self-employed as well as the wealthy.

2. Prepare yourself.  Once you know what the IRS needs from you, the next step is getting documentation that proves your claims.  Whatever you stated on your tax returns should be shown with proof.  If you haven’t saved any documentation to prove that your claims are valid, there may be some methods allowed to estimate some items on a past return during an audit.  The best way is to get support from third parties to verify the claim.  The audit could be from three years prior, so you should be saving tax documents for at least three years, just in case.

3. Be nice and quick with responses.  Do not, by any means ignore the letter.  This will only make things worse. You will have a certain deadline, and it is imperative that you meet it. Be courteous, respectful and honest.  Remember, the purpose of the auditor is to get information from you to indicate you have underreported your income or over stated your expenses.  If you are too nervous about having conversations with the auditor, have your attorney or tax preparer put you at ease and handle the discussions for you.

At the end of the day, you are responsible for the contents of your tax return.  You should be reviewing all documents very closely before submitting them to the IRS.  A big part of the whole process is communication.  Contact the experienced professionals at Dallo Law Group today to guide you through this process!