When the IRS or a state tax authority sends you a notice requesting a review of your return, it’s simple 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. 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 usually end in your favor.

Common Pitfalls with Deductions

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 – Mixing a family vacation cost into your travel deduction. Misdated Items – Claiming a 2023 expense on a 2022 tax return. Inflated Numbers – Exaggerating mileage or home‑office square footage.

The audit process is predictable; it is a systematic review. Grasping how the IRS scrutinizes deductions will help you organize your defense.

Preparing in Advance of the Audit

Compile a Master File – Create a folder, whether physical or digital, for every expense you plan to claim, with receipts, invoices, credit‑card statements, mileage logs, and any supporting correspondence. Verify Accuracy – Double‑check each deduction against your tax return, confirming that amounts, dates, and categories align exactly. Organize Chronologically – Arrange documents according to tax year, aiding you and the auditor in following expense flow. Identify Potential Red Flags – If you know an item is close to the limits (e.g., home‑office deduction or charitable contribution caps), flag it as "high‑risk" so you can be extra sure of its documentation. Review IRS Guidance – For each deduction, study the corresponding IRS Publication (e.g., Publication 463 for travel, Publication 463 for mileage, Publication 526 for charitable contributions). Knowing the exact wording of the law gives you a solid base.

In the Audit

Stay Calm and Polite – The auditor’s purpose is to verify facts, not judge you. A calm demeanor smooths the discussion. Request a Copy of the Notice – Ask for a copy to confirm exactly what the auditor is questioning. Present Documents Methodically – Show the auditor each document from your master file that supports the contested deduction. Explain the Reasoning – Provide a brief justification for the expense’s legitimacy. For example: "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 asks about a specific deduction, pull up the relevant IRS guidance and walk through how your expense meets 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 – Determine the timeline for a decision, whether you should submit more paperwork, or if a waiver or settlement is possible.

Defending Particular Deductions

Business Mileage

- Keep a detailed log noting date, purpose, starting point, destination, and miles traveled.

- Use a mileage tracking application 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).

- Compute the deduction using the simplified or regular method; display the calculations.

Charitable Contributions

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

- For non‑cash donations, obtain a written appraisal if the value is over $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 brief note explaining the business purpose.

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

- If claiming a 50% deduction, ensure 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.

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

Following the Audit

Review the Auditor’s Findings – The auditor will deliver a written report. Read it carefully to check for errors.

Respond Promptly – Should you disagree with a finding, submit a written objection or appeal following IRS guidelines.

Keep Updated Records – Even if the audit is resolved, maintain the documentation for 中小企業経営強化税制 商品 the full period required by IRS rules (usually three years, or longer for certain types of deductions).

Learn and Adjust – Identify any patterns of mistakes and adjust 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 – Rely on accounting software that automatically flags potential deduction issues.

- Tax Advisor Check‑In – Have a tax advisor examine your return before filing.

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

Defending Your 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 wording of the tax law, you can defend your deductions effectively. Preparation is your best defense: the more evidence you have, the less room there is for error or misinterpretation. Treat each deduction like a mini case study—prove its validity, and the audit will end in your favor.