Tax Audit

What is a tax audit?

A tax audit is an IRS examination of your tax return to verify that reported income, deductions, and credits are accurate. Audits can be triggered by random selection, computer scoring that flags unusual items, or related examinations of business partners or transactions. Most audits focus on specific items rather than reviewing everything. Proper records make audits manageable.

What auditors examine

Auditors verify income matches third-party reports like 1099s and W-2s. They examine deductions for proper documentation and business purpose. Large or unusual items attract attention. Common areas include business expenses, home office deductions, vehicle use, and charitable contributions. Cash businesses face extra scrutiny. The auditor's goal is to ensure reported amounts are supportable, not necessarily to find problems.

Surviving an audit

Organization is your best defense. Maintain records that support every line item on your return. Respond to requests promptly and completely but narrowly. Answer questions truthfully without elaborating. Your accountant or a tax attorney can represent you and often should. If the audit results in additional tax, you have appeal rights. Many audit adjustments are negotiated, not dictated.