If the IRS or a state tax agency sends you a notice to examine your return, it’s common to feel the pressure. Typically, most audits are routine and most taxpayers finish without major changes. The key is to defend deductions confidently and logically. This guide takes you through the steps you need—from preparation to post‑audit follow‑up—to protect the legitimate expenses you claimed.

Why Deductions Matter When Audited

Your deductions determine the difference between a high tax bill and a lower one. Tax authorities focus on deductions because they cut taxable income and are the main source of errors or disputes. Misstated or unsupported deductions may trigger an audit, and when the audit starts, the burden of proof moves to you. If you can prove that each deduction was legitimate, accurate, and documented, the audit will generally end in your favor.

Common Pitfalls with Deductions

Missing Receipts – Claiming a $200 equipment purchase without a copy of the receipt. Incorrect Category – Classifying a client entertainment expense as a business meal when the IRS sees it as non‑deductible. Personal Expenses Mixed In – Adding a family vacation cost to your travel deduction. Misdated Items – Claiming a 2023 expense on a 2022 tax return. Inflated Numbers – Overstating mileage or home‑office square footage.

The audit process is not a surprise; it is a systematic review. Grasping how the IRS scrutinizes deductions will help you organize your defense.

Preparing Before the Audit

Compile a Master File – Maintain a folder, physical or digital, for each expense you intend to claim, containing receipts, invoices, credit‑card statements, mileage logs, and supporting correspondence. Verify Accuracy – Ensure each deduction matches your tax return, with exact amounts, dates, and categories. Organize Chronologically – Arrange documents in order of the tax year. This makes it easier for you and the auditor to follow the flow of expenses. Identify Potential Red Flags – Flag items close to limits (like home‑office or charitable contribution caps) as "high‑risk" so you can double‑check their documentation. Review IRS Guidance – Read the appropriate IRS Publication for each deduction, such as Publication 463 for travel, Publication 463 for mileage, and Publication 526 for charitable contributions. Familiarity with the exact wording bolsters your case.

While Under Audit

Stay Calm and Polite – The auditor’s role is fact‑verification, not judgment. A calm demeanor eases the discussion. Request a Copy of the Notice – Make sure you understand exactly what the auditor is questioning. Present Documents Methodically – Bring your master file and show the auditor each document that supports the contested deduction. Explain the Reasoning – Briefly justify why the expense is legitimate. For instance, "This $500 coffee ran was a client meeting where we discussed contract terms, so it is a deductible business meal.". Use the IRS Publication as a Reference – If the auditor queries a specific deduction, bring up the relevant IRS guidance and explain how your expense satisfies the criteria. Keep a Record of the Interaction – Document the auditor’s questions, your replies, and any documents supplied. This can be handy if you need to revisit the audit later. Ask About Next Steps – Clarify the timeline for a decision, whether you need to submit additional paperwork, or whether a waiver or settlement is possible.

Defending Specific Deductions

Business Mileage

- Maintain a detailed log that records date, purpose, starting point, destination, and miles traveled.

- Use a mileage tracking app to remove guesswork.

- If the auditor requests mileage verification, provide the log plus a statement that the mileage was calculated using the IRS standard mileage rate.

Home‑Office

- Submit a floor plan or photo that illustrates the dedicated space.

- Provide proof that the space is used only for business (e.g., a schedule of business activities held there).

- Determine the deduction using the simplified or regular method; present the math.

Charitable Contributions

- Retain the original receipt or a bank statement indicating the transfer.

- For non‑cash donations, ask for a written appraisal if the value is greater than $5,000.

- Keep a calendar of the donation event to confirm the date falls within the tax year.

Meals & Entertainment

- Attach the receipt, date, attendees, and a brief note explaining the business purpose.

- Note that meals are currently deductible at 50% of the cost; entertainment is generally not deductible.

- If claiming a 50% deduction, make sure you have documentation that the meal was directly related to business.

Capital Expenditures

- Keep the purchase invoice, the purchase date, and the expected useful life.

- Display how the cost is allocated between the depreciation schedule and any immediate expensing (e.g., Section 179).

Post‑Audit

Review the Auditor’s Findings – The auditor will send a written report. Read it carefully to ensure no errors were made.

Respond Promptly – If you disagree with a finding, send a written objection or appeal in accordance with IRS procedures.

Keep Updated Records – Even after the audit is resolved, keep the documentation for the period required by IRS rules (typically three years, or longer for certain deductions).

Learn and Adjust – Spot any recurring mistakes and modify your bookkeeping practices accordingly.

Practical Advice for Future Audits

- Quarterly Reviews – Conduct a quick quarterly review of your expenses to catch discrepancies early.

- Professional Software – Utilize accounting software that automatically flags potential deduction issues.

- Tax Advisor Check‑In – Bring an accountant to review your return before filing.

- Keep a "Defensive" File – Maintain a dedicated folder for high‑risk deductions so you can pull them up quickly if questioned.

Defending Deductions Is a Skill

Audits can be intimidating, but they are essentially a fact‑checking process. By staying organized, keeping meticulous records, and understanding the exact language of the tax law, 中小企業経営強化税制 商品 you can defend your deductions effectively. Preparation is your strongest defense: the more evidence you have, the less room for error or misinterpretation. Treat each deduction like a mini case study—prove its validity, and the audit will end in your favor.