One mom shares her pain.
Guest Blogger Diane: Being audited was one of the worst experiences of my life. I am hoping that others can learn from my misery.
1. One thing I DID NOT KNOW was that the IRS does not accept credit card statements as a receipt. You have to have THE ORIGINAL RECEIPT. So even though I had my AmEx year-end summary, and my AmEx statements, the IRS wanted ALL ORIGINAL RECEIPTS. If you can't produce them, the expense will be disallowed.
This was probably the biggest lesson. For all of my business travel in 2007, the auditor made me go back and call every single hotel I'd been to and ask for original receipts. Very time-consuming.
Getting the paperwork together that they required took me up to 150 to 200 hours.
2. If you travel and write off any of it as business travel, you must have a travel log for each year detailing your business travel -- where you were, who you were with, and the purpose of the trip. They prefer that this information be submitted in calendar form.
3. If you write off any of your business miles, you must have a mileage log that lists, day by day, where you went and how many miles you traveled. (You can buy blank ones at Office Depot.)
The IRS required statements from my mechanic showing my odometer readings so they could see how many miles my car had on it in 2007, also.
4. If you are ever audited, they require all of your bank statements (checking and savings) for that year. Then they add up every single deposit and make sure you have reported all income. Even if it is off by $500, they will ask you where that $500 came from (in our case, holiday gifts). Intense!
5. They require EVERY SINGLE utility bill -- phone, electric, cable ... all of it. If you don't have these, it's a nightmare to try to get them from the companies. Talk about red tape!
6. Check out your accountant. Ours wasn't "enrolled" with the IRS (unbeknownst to us), and made a huge error that cost us thousands of dollars.
7. You are not allowed to have a TV in your home office. If you have children, they will question whether they use the computer or not. (I have been told that having a home office is a red flag for the IRS, but I'd had one for ten years prior with no problems.)
8. DO NOT TALK TO THE AUDITOR. Have your accountant represent you. They can use anything you say against you.
9. If they audit you for one year, they can also go into the preceding and succeeding years -- in my case, I was audited for 2007, but they also examined 2006 and 2008. They billed us for three years based on their findings in 2007.
10. Don't sign ANY bill from the IRS until you get a second opinion. Once you sign it, you owe it. (And if you owe the IRS more than $10,000, they can put a lien on your bank account and garnish your wages.)
I hope no one reading this article is ever audited ... but they say I was picked at random, so there are no guarantees. Good luck.