When the IRS or state tax agency sends you a notice that they want to review your return, it’s common to feel the pressure. The good news is that most audits are routine and most taxpayers exit without major changes. The key is to defend your deductions both confidently and logically. This guide will walk you through the necessary steps—from preparation to post‑audit follow‑up—to safeguard the legitimate expenses you claimed.

Why Deductions Matter During an Audit

Your deductions determine the difference between a high tax bill and a lower one. The tax authorities focus on deductions as they reduce taxable income and are the most common source of errors or disputes. If deductions are misstated or unsupported, they can trigger an audit, and once the audit begins, the burden of proof falls on you. If you can prove that each deduction was legitimate, accurate, and documented, the audit will generally end in your favor.

Frequent Deduction Pitfalls

Missing Receipts – Claiming a $200 equipment purchase without a copy of the receipt. Wrong Category – Recording a client entertainment expense as a business meal when the IRS deems it non‑deductible. Personal Expenses Mixed In – Including a family vacation expense in your travel deduction. Misdated Items – Submitting a 2023 expense on a 2022 return. Inflated Numbers – Inflating mileage or home‑office square footage.

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

Preparing Before the Audit

Compile a Master File – Keep a folder (physical or digital) for each expense you plan to claim, including receipts, invoices, credit‑card statements, mileage logs, and any support documents. Verify Accuracy – Double‑check each deduction against your tax return, confirming that amounts, dates, and categories align exactly. 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 – For each deduction, read the corresponding IRS Publication (e.g., Publication 463 for travel, Publication 463 for mileage, Publication 526 for charitable contributions). Knowing the exact language of the law gives you a strong footing.

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 – Ensure you get a copy to clarify precisely 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 – Make note of the auditor’s questions, your replies, 期末 節税対策 and any documents you provided. This is useful if you need to refer back to 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

- Record a detailed log that lists date, purpose, starting point, destination, and miles traveled.

- Use a mileage tracking app to remove guesswork.

- If the auditor asks for mileage verification, give the log and a statement that the mileage was calculated using the IRS standard mileage rate.

Home‑Office

- Present a floor plan or photo that shows the dedicated space.

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

- Calculate the deduction via the simplified or regular method; show the calculations.

Charitable Contributions

- Keep the original receipt or a bank statement that shows the transfer.

- For non‑cash donations, require a written appraisal when the value exceeds $5,000.

- Store a calendar of the donation event to ensure the date is within the tax year.

Meals & Entertainment

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

- Note that meals are currently deductible at 50% of the cost; entertainment is usually 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 date of purchase, and the expected useful life.

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

After the 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, file a written objection or appeal as per IRS procedures.

Keep Updated Records – Even when the audit is resolved, retain the documentation for the period required by IRS rules (generally three years, or longer for specific deductions).

Learn and Adjust – Detect any patterns of errors and tweak your bookkeeping accordingly.

Practical Advice for Future Audits

- Quarterly Reviews – Do a quick audit of your expenses each quarter to catch discrepancies early.

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

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

- Keep a "Defensive" File – Keep a dedicated folder for high‑risk deductions to pull up quickly if questioned.

Defending Deductions Is a Skill

Audits can feel intimidating, but they are fundamentally a fact‑checking process. By staying organized, keeping meticulous records, and understanding the exact language of the tax law, you can defend your deductions effectively. Preparation is your best defense: the more evidence you gather, the less room for error or misinterpretation. Treat each deduction like a small case study—prove its validity, and the audit will end in your favor.