Tax Return Documents to Save in Case of an Audit

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Be audit-proof: Save your tax returns

Savings one’s tax documents after filing an annual tax return is probably the second most important tax activity a person can do after actually filing a tax return on time and paying any taxes due.

Start With the Tax Return
A person’s tax return, both for federal and state, includes a variety of schedules and paperwork. Keeping a copy of what’s filed with a tax agency is key in defending it later on. It literally spells out what a taxpayer reported to the tax agency for income, eligible deductions and tax credits, and taxes owed or tax refunds due per the return’s calculations.

Receipts, Proof of Eligibility, and Spreadsheets
People can easily fill out a tax return, take no exemptions or benefits, and pay taxes on what they owe. It’s simple and the IRS makes it easy for those earning under $50,000 a year to do so on a 1040EZ Form. States do the same. This is because tax agencies are under no requirement or obligation to identify when a person can reduce his taxes. However, they have to provide the lesser charge if it is claimed.

The best defense to an auditor’s examination is to have both receipts and calculations documented and ready to show, proving how a deduction or tax credit figure was arrived at on a tax return. Sometimes tax agencies provide a spreadsheet form to do this on, but taxpayers are generally on their own. So, because most deductions or credits are aggregate figures of transactions, a taxpayer needs to have on file all the receipts that were used as well as a spreadsheet or calculator tape showing they added up to match the figure inputted on the tax return form. If, while preparing a return, a taxpayer cannot do this, he shouldn’t take the deduction or tax credit – period.

Proof of Exemptions
While it may seem silly, always having on hand proof of a marriage license as well as children’s birth certificates cuts short any tax agency’s argument that a taxpayer claimed too many family exemptions. A government agency can’t argue against its own vital statistics documentation. Being able to show children and a marriage license defends two of the most valuable tax deductions a taxpayer can claim.

Duration of Record Holding
Copies of all relevant paperwork should be held for at least three years after a tax return filing and probably as long as five years.

A tax audit can happen via desk screening, computer filtering, or with an auditor or tax agent visit. In some cases, especially with desk audits sent by mail, it’s far easier to just pay the suggested adjustment (usually under $500) than to fight. If, on the other hand, a tax special agent visits, it’s time to immediately get a criminal defense lawyer before saying or providing anything. A tax special agent is called when the tax agency thinks a crime has occurred and anything said or provided can be used in the prosecution of a taxpayer.