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Dealing with IRS Audits: A Financial Planner's Perspective

Dealing with IRS Audits: A Financial Planner's Perspective

January 24, 2024

Facing an IRS audit can be a nerve-wracking experience, but with the right preparation and understanding, it doesn't have to be a daunting one. As a financial planner, I've guided clients through the intricacies of IRS audits, and in this blog, I'll share valuable insights on how to handle these situations. From preparation tips to understanding audit triggers, let's explore the steps you can take if faced with an IRS audit.

Understanding IRS Audits: A Brief Overview

An IRS audit is an examination of your tax return to verify its accuracy and ensure compliance with tax laws. While the idea of an audit may induce stress, it's essential to approach the process with a level head and the right information.

Preparation Tips for IRS Audits:

  1. Keep Meticulous Records:

    • Maintain organized and thorough records of your income, deductions, and supporting documents. Well-documented records can serve as your first line of defense during an audit.
  2. Understand Audit Triggers:

    • Be aware of common audit triggers, such as significant changes in income, large charitable deductions, or business expenses that seem disproportionate. While these factors don't guarantee an audit, they may raise red flags.
  3. Seek Professional Assistance:

    • Enlist the help of a tax professional or financial advisor to review your tax return before filing. Having an expert examine your return can identify potential issues and provide guidance on mitigating audit risks.
  4. Respond to IRS Notices Promptly:

    • If you receive an IRS notice, respond promptly and accurately. Ignoring or delaying a response can escalate the situation. Your timely cooperation can positively influence the audit process.

Understanding Audit Triggers: A Financial Planner's Insights:

  1. Income Discrepancies:

    • Sudden and unexplained changes in income, especially substantial increases or decreases, may trigger an audit. Ensure that your reported income aligns with your financial situation.
  2. High Deductions:

    • Large or unusual deductions, particularly in relation to your income, can attract attention. Provide detailed documentation for deductions such as charitable contributions, business expenses, and medical expenses.
  3. Self-Employment and Small Business Activities:

    • Self-employed individuals and small business owners face a higher audit risk due to the complexity of their tax returns. Maintain accurate business records and be meticulous in reporting income and expenses.

Steps to Take if Audited: A Strategic Approach:

  1. Remain Calm and Cooperative:

    • Keep a calm demeanor and cooperate fully with the IRS. Provide requested documentation promptly and maintain open communication throughout the audit process.
  2. Review the Audit Report:

    • Carefully review the audit report and understand the IRS's findings. If there are discrepancies, work with your tax professional to address and rectify the issues.
  3. Consider an Appeal:

    • If you disagree with the audit findings, you have the right to appeal. Consult with your tax professional to determine the best course of action and ensure all necessary documentation is in order.
  4. Implement Changes for Future Compliance:

    • Learn from the audit experience and implement changes to enhance future compliance. This may include refining record-keeping practices, seeking professional guidance, and staying informed about tax laws.


Dealing with an IRS audit requires a strategic and informed approach. By proactively preparing for potential audits, understanding common triggers, and seeking professional assistance, you can navigate the process with confidence. Remember, you don't have to face an audit alone—your financial planner is here to provide support and guide you through every step. Stay proactive, stay informed, and maintain open communication to ensure a smoother audit experience. If you have concerns or questions about audits, don't hesitate to reach out to your trusted financial advisor for personalized guidance. Here's to financial resilience and successful audit resolutions!