There is no small talk during an IRS tax audit. No chatting. No smiles. It’s been many years since my first (and only) tax audit but I well remember the deadening atmosphere of that IRS office. Up till then I had been in and out of the colorful offices of newspapers, publishing houses, advertising agencies and art departments. The contrast between those places of high energy and creativity and the drab, silent IRS office — so devoid of personality and personal effects — unnerved me.
I was there alone. The IRS letter said I could have someone represent or accompany me, presumably meaning my tax preparer, a man I thought best to keep out of the IRS spotlight. He had been recommended to me by a magazine art director, how or why I can’t imagine. His office on 42nd Street was closet-size, a cluttered, dusty space he shared with another man sitting at a facing desk. A noisy breather, my tax preparer worked in pencil, the better to make numerous erasures as he filled in my first Schedule C tax form. I had just gone freelance and he was explaining all the deductions the self-employed could claim, many of which I was hearing for the first time. So needless to say I had not saved any receipts for those deductions. No problem, he claimed. Just estimate your expenditures. My memory for numbers is none too sparkling, so back and forth we went, me struggling to remember and him spurring me on to spin ever higher figures.
And these, apparently a bit too fanciful figures, had brought me to that IRS office. Dressed in inexpensive, oldish duds and scruffy shoes (I decided to forgo a tattered shawl), I attempted to explain my failure to provide the IRS with the requested expense receipts. After listening deadpan to my tale, the agent did some fast figuring and came up with a number for my allowable deductions the IRS considered more realistic given my particular financial situation. Relieved — my imagination had conjured up far scarier punishment scenarios — I grabbed at it and paid up.
I was not the only client my tax preparer brought to the attention of the IRS. When another designer also went to him to prepare his first tax return as a freelancer (this time armed with all the correct expense receipts), he was shocked to hear the final tax amount he owed the government. So shocked, in fact, he ordered the tax preparer to instantly double all his deduction figures. Done!
This time when the IRS came calling, I heard they went directly to that designer’s apartment to personally check out all the lofty expenditures he had claimed for his home workspace.
So if audit visits to or from the IRS are not things you’re particularly keen on and would prefer to avoid, check out these Wall Street Journal suggestions.
And if you’re curious to know how an IRS audit actually works, read all the details from the horse’s mouth.
More on Taxes and Business:
- 20 Lowest Property Taxes in USA
- Five Highest and Lowest Property Taxes per Capita
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- 20 Most Profitable Small Businesses in USA
- Is Your Employer Underpaying You?
- A Flub, a Flare-up and a Firing