You filed your taxes, stuffed your paperwork into a desk drawer, and got ready to move on with your life. But then the unthinkable happens: You receive an IRS audit letter in the mail, and you're not sure whether to cry, scream, or panic.
Continue Reading Below
Though your odds of getting audited are fairly slim to begin with -- less than 1% of returns are selected there's always the possibility that your return will somehow make the list. Here's what to do if that happens to you.
IMAGE SOURCE: GETTY IMAGES.
1. Read your letter -- carefully
It's natural to worry when you get an IRS letter, but one thing to remember is that sometimes, all it takes is a simple mistake or mismatch to trigger an audit. Imagine, for example, that you misplaced one of your 1099 forms listing $800 in income, while the IRS received its copy. It's an innocent enough mistake, but the IRS is going to want its share of taxes on those earnings.
In other situations, the IRS might send you an audit letter because it requires proof that your deductions are valid. For instance, say you donated goods to charity and took a $600 deduction as a result. The IRS may want to see a copy of the receipt you received for your donation, or other proof that supports your claim.
Continue Reading Below
While getting an audit letter is enough to make you lose your cool, read that correspondence carefully to see what the IRS is actually saying. Resolving the issue might be a simple matter of putting together some documentation and sending it back for review, or submitting a small additional payment for the portion of your tax bill you neglected to pay. Also, keep in mind that audits don't always work against you. In some cases, an audit might reveal that you're owed more money than you thought, so it pays to get all the facts before you panic.
2. Determine whether the IRS is right
Sometimes, an audit letter will state that you owe more taxes than the amount listed on your return. The IRS no doubt has its reasons for requesting more money. But before you rush to write out a check, review the information contained in your letter, compare it to your own records, and figure out whether the IRS is correct in its assertion. You may be able to prove the IRS wrong, in which case you'll need to respond quickly and provide the relevant details.
Even if you prepared your own taxes initially, if you're in a situation where the IRS is asking for more money, it might pay to consult with a tax professional -- especially if you're looking at a larger sum of cash. A professional might help you prepare a response that's more likely to result in a favorable outcome.
3. Pay what you owe
If you receive an audit letter stating that you owe more taxes, and you realize the IRS is correct in its claim, then your best bet is to pay that additional tax right away. Once the tax filing deadline passes, there really is no grace period, and for every day you sit on the IRS's money, you'll incur additional interest and penalties that will only make your situation costlier. If you can't pay your additional balance in full right away, you can request an installment agreement and fulfill your tax obligation over time.
Getting an audit letter is rarely fun, but no matter what that piece of paper says, don't make the mistake of ignoring it and hoping it'll magically go away. The IRS is notably tenacious when it comes to collecting what it's owed, so you're better off facing the problem head-on.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.