Oh, the thrill of receiving an audit notice from the Internal Revenue Service (IRS)! While it may not be the most delightful surprise, it’s important to take a deep breath and take one step at a time. This is when your recordkeeping skills are tested! We will talk about the documents that the IRS might request.
When conducting your audit, the IRS will ask you to present certain documents that support the income, credits or deductions you claimed on your return. For verifications of income, you should have tax forms such as W2, 1099-K, 1099-NEC, 1099-MISC, etc. Verifications of credits, deductions, or expenses would depend on the nature of each item. When preparing your tax return, you should have depended on these information. Therefore, it’s important to keep your records tidy so you can prove to the IRS that you prepared your tax returns correctly.
Your IRS notice will contain information on how and when to present your records. If the IRS is conducting your audit by mail, the address to mail the requested records will be on your notice. If the IRS is conducting your audit in person, bring your records with you.
Note: Never mail original records. Send them copies, and always keep the original with you.
How to organize the requested records
Organizing the records you bring or send will speed the process and prevent errors or misunderstandings. Organize them by year and type of income or expense, and include a summary of transactions. Always err on the side of caution, and make their jobs easier by being as clear and organized as possible.
Examples of records the IRS might request
Every audit focuses on certain aspects of a return, but the kinds of records requested by the IRS will most likely be on the following list. No record can stand on its own. You must include the circumstances surrounding any document you send. Remember, only send copies. Better yet, save a copy (paper or digital is okay) of your IRS response do you know exactly what you sent in. Even better, upload all documentations to your cloud storage. This way, you’d have a peace of mind, knowing that everything is safe in its place and can be accessed anytime from anywhere. Here are examples of documents that IRS might request from taxpayers:
- Proof of Income: This includes documents such as W-2 forms, 1099 forms, and any additional income records, such as rental income or side gig earnings. The IRS wants to ensure that all sources of income have been accurately reported, so gather up those pay stubs, bank statements, and any other relevant documents that showcase your financial gains throughout the year.
- Expense Reports: This might be a little difficult to prove than the income, because the burden is on you to prove that you did incur the expenses. The IRS is pretty persistent to ensure that all deductions claimed are legitimate. You’ll need to provide documents that support your claimed expenses, such as receipts, invoices, canceled checks, and even mileage logs if you’re claiming vehicle expenses. Remember, accurate record-keeping is key to making this part of the audit a breeze.
- Investment and Retirement Account Statements: If the IRS audit gets into your investment and retirement accounts, ensure that any capital gains, dividends, or distributions have been accurately reported. Gather your brokerage statements, 401(k) records, and any other relevant investment or retirement account documents to keep the IRS pleasantly engaged.
More detailed items that will support your position:
Receipts – Present these by date with notes on what they were for and how the receipt relates to your business. In addition to providing the dollars paid or received for a service or product, certain kinds of receipts can prove mileage.
Bills – Include the name of the person or organization receiving payment, the type of service and the dates you paid them.
TIP: Credit card receipts and bank slips are usually printed on thermal or printer paper, that would quickly lose their clarity in a few months. It’d be a good practice to scan or copy them so you’d have a longer lasting copy.
Canceled checks – Group these with copies of the bills they paid and any applicable employer reimbursement.
Legal papers – Include a description of what the case was about, when it happened and how it relates to your business, credit or deduction. Examples include:
- Divorce settlements including custody agreements
- Criminal or civil defense papers
- Property acquisition
- Tax preparation or advice
Loan agreements – Include a copy of the original loan with the following:
- Names of the borrowers
- Location of the property
- Financial institution making the loan
- Amount borrowed
- Terms (the number of months to pay)
- Settlement sheet
- If the loan was from an institution, include an end of tax year statement indicating interest paid
- If the loan was not from an institution, provide a statement from the payee indicating the interest paid that year as well as the payee’s address and Social Security number
- Provide a break-down of how you used the money
Logs or diaries – These might show the dates and locations of your travel as well as the business purpose and mileage. These might also show gambling winnings and losses as well as dates and locations. These might also show job-hunting activity and expenses.
Tickets – Label travel tickets with the business purpose for the trip and group them with other receipts from the same trip. Lottery tickets help provide proof of profit or loss.
Medical and Dental records
- Medical savings account statements
- A copy of a handbook or other statements showing benefit and reimbursement policies
- Physician statements
- Capital improvement records for medical purposes including appraisals of the property before and after the improvements
- Contract for attendant care
Theft or loss documents
- Insurance reports detailing the nature of the loss or damage
- If not insured, copies of fire department or police reports on the loss, theft or accident
- Photos or video showing the extent of the damage (if available)
- Appraisal from a qualified adjustor showing fair market value of the property before and after as well as an estimate of the damage
- Brief explanation of the loss
Employment documents – These might include uniform policies or dress codes, continued education requirements, W-2 reimbursement statements or policies.
- Schedule K-1 – These are used to report each shareholder’s share of income, losses, deductions and credits when an S corporation files its annual tax return.
Questionnaires
If the IRS conducts an audit with you by mail, they may also require you to fill out a questionnaire, which is usually included in the IRS letter they send you.