While some people sweat at the idea of preparing for an IRS audit, there's good news: the chances of getting audited are lower than they've been since at least the 1980s.
Budget cuts and new responsibilities are limiting the Internal Revenue Service's (IRS's) resources and ability to police tax returns, so this year, the agency is only going after the "worst of the bad guys," according to the Associated Press.
Although the audit risks are lower this year, it doesn't mean all taxpayers are off the hook. Here's how to prepare for an IRS audit.
- Determine which tax year is being audited. For the most part, the IRS has three years after you file your return to audit. However, depending on the circumstances of your filing, the time could be doubled. For example, taxpayers who've omitted more than 25 percent of their income will be susceptible for IRS audits for six years, according to Forbes. So make sure you know which tax year the IRS is auditing.
- Why are you being audited? Taxpayers can be chosen for an audit by random selection or to further examine their documents. When payor records, like W-2 forms, don't match the information reported, the IRS may audit. Audits may occur over correspondence between the IRS and the taxpayer. In rare circumstances, IRS officials can conduct an audit at the taxpayer's home or place of business.
- Know your rights. The Taxpayer's Bill of Rights was enacted to prevent abuse by the IRS during audits. Some of the rights taxpayers have are the right to know why the IRS is asking for information, how it will be used, and the right to appeal disagreements.
- Get your documents together. In preparation for a potential IRS audit, it's recommended that you save your tax documents for at least three years. The IRS will send you a written request for specific documents, but it's in your best interest not to volunteer more information than is requested.
- Hire an attorney. One of the taxpayer's rights is to retain independent counsel. So if Uncle Sam comes knocking, don't panic. Call a tax attorney near you to for more help.
Last year, the IRS audited less than one percent of all returns from individuals, reports the Associated Press.