To complete your IRS audit, you must provide supporting records that prove you filed an accurate tax return. But what if you tossed the supporting records in the trash, misplaced them when you moved or watched them float away during a flood? Take these steps as you recover your records and prepare for your audit.
Start With The Records You Have
Maybe you don’t have all the records you need. That’s okay. Find and organize the documents you do have.
Bank And Credit Card Companies
Many of your purchases, including the ones that support your deductions, may be listed on your bank or credit card statements. Access these statements online or ask your bank or credit card company to send new copies to create a paper trail of all your income and expenses.
From your bank, see if you can get electronic or paper copies of canceled checks. (Though that can be expensive, so check with your bank before ordering them.)
Identify The Gaps
Review income and spending patterns from other years or compare expenses and income with other businesses in your industry as you recreate reasonable patterns for the missing records.
Perform a ratio analysis, to verify how much you typically spend or make in a year.
Track Down Documents
Request copies of invoices, supporting documentation and affidavits from your vendors, suppliers and clients to prove itemized expenses and income.
Look at calendars, to see if you can track purchases to a particular event, place and time. Then, with those dates, review correspondence files and emails to see if you can find any related documents.
Still stuck? Are there related documents that might reveal an item’s purchase date and value? For example, if you added insurance or an extended warranty to cover an iPhone X, then the policy will likely have the purchase information. A manufacturer’s rebate or bill of lading might also have that information, too.
Provide Oral Explanations
Your IRS auditor will weigh printed documents more heavily than oral explanations, but you can defend your tax return orally, if you can’t find printed records. And be ready to explain both the reason for failing to keep the documents as well as the information they’d have contained.
Hire A Forensic Accountant
Like forensic scientists reconstruct crime scenes, forensic accountants reconstruct the records you need for your audit. They find missing documents, fill in gaps and create a complete and accurate financial statement.
We recommend you take these steps to find and organize your records before your IRS audit. We’re also available to help you reconstruct your records, so contact us at 720-398-6088 for assistance.