What documentation do I need to provide in an audit?
A tax audit can happen to anyone. However, if you’re self-employed, you might have claimed deductions for your home office and a bunch of work-related expenses on your tax return. While these deductions could all be legitimate, they will likely give the IRS pause and force them to examine your tax return more scrupulously.
If you get audited by the IRS, you need to be able to prove that you are eligible for all the credits and deductions you claimed. This is achieved by thorough recordkeeping. Today we examine the documentation you’ll need to be able to supply to the IRS to prove your case.
What do I need to show?
Defending yourself in an audit is similar to doing your math homework in school: you need to show your work. You have to show how each individual expense adds up to the total deduction you claimed on your return. The IRS will not accept credit card statements as adequate proof; you need itemized bills, receipts and mileage logs. Be sure to provide copies—not originals—of these documents.
If you have claimed travel, meals and entertainment as business expenses, you need to show that these expenses were appropriate—not lavish—and have a legitimate business purpose. If you have dinner with important clients, keep track of the date, time and number of people at the dinner. Being overly detailed in your recordkeeping will pay off in the long run.
How long should I keep the evidence?
Hold on to all of your records until the statute of limitations on an audit runs out. For most federal audits, that limit is three years. However, there are some documents you should hold on to for the long haul. These include:
- Records of your property—real estate, stocks and other assets
- Marriage/divorce certificate
- Adoption certificate
- Copies of old tax returns
An audit is a stressful experience for anyone. However, you have the right to representation by a tax attorney during an audit—which can greatly ease the process.