The dogs, Brooks and Cooper, and I walked to the mailbox on a not so recent sunny day to get the mail. Shuffling through the envelopes and the junk mail, I came upon a big white envelope with a return address of the IRS. Yikes – inside was a notification of a tax audit for 2 years – 2013 and 2014. In the words of Scooby Doo – Ruh Roh.

After an initial few moments of panic, I called my tax accountant. Yes – even though I am a CPA, taxes are not my specialty so I hire an outside tax accountant. She suggested I get to work collecting and organizing the information required from this very detailed 8 page document from the IRS.

What information did the IRS need?

Full documentation for everything. Again – Yikes! This task would overwhelm even the most organized person. I went to work to find full documentation for several areas of my return including medical deductions and expense items on my Schedule C for my business among others.

How did I tackle this productively?

I probably killed a forest, not just a few trees, since I copied every receipt I had from 2013 and 2014 for medical, health insurance, business expenses, website expenses, subcontractor expenses, conferences, etc. As a CPA, I had many continuing education expenses. I printed out all the receipts in my email, in PDFs, or another electronic format.

What was the actual process of the audit? 

Let me begin by saying the auditor who my tax accountant and I met with is a normal guy with a couple of kids. He has a sense of humor and dresses in business casual clothes. He didn’t know everything and had to research several items during our meeting. He’s a real person just like you and me.

I went into the actual audit with 2 very big organized binders, one for each year and was ready and prepped.  The auditor started with a routine list of questions for me, then moved to the areas of concern on his list.

For medical receipts, the IRS wanted the date, patient name, doctor seen, service provided and the amount. A copy of the credit card showing the doctor paid was not sufficient.  The IRS needed verification that the patient was me or a dependent of mine and that it was medical in nature. I had to show that the prescriptions which were listed as a deduction were NOT over the counter medication.   Many of my medical expenses were denied, because I did not have the specific doctor’s receipt-big lesson learned here!

What I learned:

1. Being organized saved the day. When a document was requested and I was able to provide it, the deduction was allowed.  If not, the deduction was disallowed!
2. Save every receipt.
3. 1099 all of your subcontractors-even those who have their own companies or LLC’s.
4. Keep accurate mileage records.
5. Meals should always be categorized as meals, not travel – even when traveling for business, and are therefore 50% deductible.
6. Having my tax accountant with me was worth EVERY dollar!!
7. Audits are scary and nerve wracking-and I NEVER want to go through one again!