—Is there anything else anyone can think of that I may need?—
Other than a cyanide capsule, I think you have it covered.
When I did it, I kept a mileage log of every single trip (and its purpose) in an excel spreadsheet and let it sum the miles. I use the 1040 short form now. :-D
I went through this last year.
Take your time getting all your paperwork together. No matter what they say, they need to give you the time.
Over document if possible.
Paying your tax man can be useful if your bill is high.
The last thing to do is blow them off.
Good luck!
ML/NJ
You mention mileage and expenses both. I did not think you could deduct repair expenses if you were reimbursed/claimed for mileage. However, the tax code is the one piece of accounting I never could seem to get a handle on.
Are you an independent contractor.....file on a Schedule C..or are you an employee who is reimbiursed for your mileage. If the latter, then you can’t take auto expenses off your return..
Ask your tax lawyer what you need.
You can take standard mileage charges or actual expenses, your choice. But you cannot take both. If you took both, then that’s why you were audited. You’ll have to correct your return and pay back taxes, interest and penalty charges.
I am a tax preparer.
You can claim standard mileage or actual expenses. You will probably come out much better using standard mileage with 18,000 business miles. If you used standard mileage the first year you put this vehicle in service for business, you can use standard or actual mileage in later years for that vehicle. If you used actual mileage the first year you put this vehicle in service, you must use actual mileage in later years for that vehicle.
You must document all of your vehicle expenses. For standard mileage, record your odometer reading on Jan 1 each year so that you can compute total miles. You must also keep a log of of the dates, purpose, and miles traveled for business use and miles traveled for commuting. It is also a good idea to keep maintenance records that have the odometer reading such as oil changes.
The IRS is getting a lot stricter on business vehicle expenses.
The IRS knows that you are fudging the mileage number because you made the mistake of using a round number like 18,000. You are less likely to receive an IRS letter if you use a number like 18,357. Is this the actual number of miles used for business or is this a guess pulled off the ceiling? I just finished an offseason tax class on vehicle expenses. Round numbers used for standard mileage was pointed out as a reason for the IRS to flag a return.
If 18,000 is the actual business mileage and you have documentation to prove it, you have nothing to worry about. Otherwise, the IRS will disallow your standard mileage and you will have to pay back some money plus a penalty.
I hope this helps.
First, the pretty good news:
If you had a tax preparer (CPA) do your form and sign off on it you can have him/her attend the audit and you can sit it out. You basically give them a limited power of attorney that lets them speak for you only about the year in question. That eliminates any fishing expeditions that the auditor may wish to undertake were you present. The other point being that people tend to babble on during the audit and disclose far too much information, by having your preparer be your proxy you don't even have to be there. If you did your own forms or had H&R Block or similar that will not be an option and you'll have to appear. Just remember to keep nervous chatter to an absolute minimum.
Now the bad news:
Once you've been audited you can expect another audit next year and the year after. The IRS works on the theory that if they audited you it had to be for a reason and even if they didn't find anything with the first audit, it's always worth another look. It stops with the third audit because there is a law on the books that is designed to prevent "harassment" and so you are finally off the hook.
It happened to me back in the 1980's and I had my accountant attend for me and they never collected an extra dime although I did have a bills from my guy for his time expended. I don't think that IRS policy has softened much on their audit practices over the years. From their POV everybody cheats and their job is to maximize the revenue stream collected.
Good Luck,
GtG
If so answer only questions asked and don't discuss other areas. Sometimes, it could lead to other issues or years.
You didn't mention whether you filed Schedule C or deducted as employee expense on Form 2106 subject to 2% limit.
You may wish to visit the irs.gov site and review the IRS audit manual for typical procedures.
Depending on the dollar audit exposure, you may wish to consult with a CPA that is familiar with IRS audits (a tax attorney is overkill unless it is criminal or there is a court case). A CPA would have a technical knowledge at or above the level of the IRS agent. Some taxpayers have been intimidated in dealing with IRS. An independent review by the CPA could be helpful before dealing with IRS.
You may wish to determine if this is a random audit or is targeted to a specific industry. The IRS is currently looking at independent contractors who should be classified as employees.
So you may have more exposure than what the audit letter is asking for.
Go to YouTube and search:
“Never talk to the police”
Watch and follow the advice this law professor gave when the IRS wanted to meet someone to go over his taxes.
That may resolve it right there. IRS agents are lazy and unless there is a lot of money involved, you just aren’t worth the effort.
Forgot something in my previous post.
If you need help with the IRS, an Enrolled Agent would be better and cheaper than a lawyer. An Enrolled Agent (or EA) is a tax professional recognized by the federal government to represent taxpayers in dealings with the IRS.
Have a tax attorney specializing in IRS cases with you. Record all proceedings, threats and demands.
In my audit experience, that is what they are counting on. They will try to wear you down to pay them to leave you alone.
When I was audited they would give me two weeks to reply to their letter and the time started when they mailed the letter, so I would have insufficient time to make a good reply.
I learned to just send them more documentation with each request, even if I did not have everything I wanted to send. They would follow up with another challenge. I would send more documentation. After four or five challenges and document dumps, they gave up and said I didn't owe them anything.
Good luck and stay tough.