3 Ways to Prepare for an Audit Before You Are Ever Audited

Overcome the Fear of an Audit and Take Back Your Taxes! I still find it hard to believe, but I've seen people give up thousands in LEGAL tax savings in an effort to hopefully reduce their audit risk, and many times at the advice of their own accountant!

This is often an emotional decision - the fear of an audit.

I find it is the unknown that really evokes the fear of an audit - will more tax be assessed? What will the penalties and interest add up to? Plus, how much will it cost to have an experienced CPA make the audit go away?

This is why I focus on coaching my clients on how to turn these unknown items into something more controllable so they can take back their taxes. Here's how:

3 Ways to Prepare for an Audit Before You Are Ever Audited

#1 Follow the Rules Knowledge is critical here. Whether it's your knowledge or your tax advisor's knowledge or a combination of the two, knowing the tax rules opens a whole new world as to what is legally deductible. Understanding exactly what you need to do to legally claim your deductions means that even if you are audited, you have followed the rules and minimized the likelihood of having any audit adjustments.

#2 Document! Document! Document! Leverage your knowledge from #1 to keep your documentation in order. Most people hate this step because it's tedious and boring! But, which would you prefer: a little work now to get your documentation in place or having to do it later while an auditor is waiting for it (when it's much more difficult to remember and find it)?

These first two ways greatly reduce the chances of having audit adjustments during an audit. This helps you take control of the unknown and minimize how much tax, penalties and interest could be assessed during an audit.

#3 Get an Audit Defense Plan Now it's time to take control of the professional costs associated with an audit. I always recommend hiring an experienced CPA to manage an audit. However, there is a cost associated with this, and many people worry about running up the bill.

The solution is an audit defense plan. An audit defense plan covers the professional fees of having your CPA represent you during an audit. It typically involves a one time flat fee and covers a specific tax return.

An audit defense plan doesn't guarantee your tax return won't be audited. However, if your tax return is audited, the professional fees of your CPA to represent you during the audit are covered. Not all tax preparers offer an audit defense plan, so be sure to check that yours does and take advantage of it!

Overcoming the fear of an audit is a powerful tool to maximize your tax savings and take control of your costs!