Issue link: https://www.massageandbodyworkdigital.com/i/70065
WHEN THE IRS CALLS The next three months of our lives included stacks of paper, calls to our accountant, lots of math, paper clips, highlighters, frustration, binder clips, anxious thoughts in the middle of the night, and teeny receipts you couldn't read. I survived the process and now want to share my experience—not just the technical things I did to prepare, but also my feelings and how I handled it. If you ever find yourself in this position, my experience might offer you a little better idea of what to expect, what to do, and how it may feel. THE UNKNOWN One of the scariest things for me in this process was the unknown quality of an Internal Revenue Service (IRS) audit. Even if you know you didn't do anything wrong, you can't help but feel nervous and uneasy when that letter arrives. You don't know exactly which receipt or transaction they might want to see. I had about 15 clients who had gone through an audit, but everyone had a completely different experience, so their individual cases didn't offer me any real insight. It was good to see they lived through it, though, and still had enough money left to come to me as a client. Then again, I had one gentleman who had been audited eight years in a row. The stories scared me. The first choice my husband and I made was to have an "enrolled agent" represent us. Our agent, an accountant at the firm that does our taxes, had been through intense IRS training and testing. When you go into an audit with a representative like this, you're often perceived differently. Now, not everyone wants to go that route and it is pricey. Most charge $100 per hour for their preparation work and representation time. I wouldn't have had it any other way, though. He guided us through the process, communicated with the IRS auditor, set up the appointment, showed us how to arrange our records for maximum result, and sat with me on the big day and fielded most of the questions. It was a comfort to have an experienced person help us through this process. If you can afford it, I highly recommend this kind of representation. THE PREP BEGINS We dug out the 2008 taxes—the year they wanted to examine. The IRS asked for all Schedule C activity, bank accounts, mileage, and travel logs. I tend to be pretty organized already and figured getting this information together was going to be easy. Clients told me they spent between 40 and 60 hours preparing for their audits; I thought they were nuts. I mean how long could it take? I had no idea. I compared the spreadsheet I sent to our accountant with the Schedule C they had filed. Some of the categories were different and it was a time-consuming challenge to match up their numbers with my numbers. My advice: find out what categories your accountant uses in preparing your taxes and use similar accounts. My accountant combined some of my numbers into one category for space purposes and it was a huge challenge to get everything matched up. Our representative, Ernie, wanted us to enter every receipt into a spreadsheet. This was also time- consuming because everything had to be put in the right category and entered in date order with an added explanation. The receipts then needed to be put in matching order. I now realize that doing this when you prepare your taxes is probably a good way to go; I discovered I had actually cheated myself out of a few receipts. I then examined the bank records. I added up all my deposits and realized the numbers didn't match. My deposits didn't match the income I claimed. I was short, and not in my favor. How could Even if you know you didn't do anything wrong, you can't help but feel nervous and uneasy when that letter arrives. this have happened? I pride myself on being fastidious with my records. I went back through my appointment book and spreadsheets. Clearly my knowledge of the spreadsheet software wasn't as good as I thought it was, and some of the spreadsheet wasn't included in the total. I messed up my formula and panicked. Not only was I going to owe tax on that money, but also I was afraid they'd think I did it on purpose. I woke up in the middle of the night in panic about this issue several times. I felt terrible and embarrassed. I didn't normally make mistakes like this. Also at issue was the fact that I only had one bank account. As a result, I had to prove all my non-income deposits were truly not income. For example, I did an event where I was reimbursed for expenses. That wasn't income, but I had to prove it. I had to write to the organization and get a letter 60 massage & bodywork november/december 2010