Audits: Always Be Prepared
ever assume you won't be audited. It can happen to anyone and you
need to be prepared. What many people overlook is that you will need
much more than your receipts to be properly prepared for an audit. We
have provided a list of items you should keep in mind at all times in
case you are later audited:
A good rule of thumb is to treat each day as if you will be audited two or more years later, because this is often the case. Keep all records including appointment books, receipts, bank statements, check books, and tax returns. If you move or clean house, make sure to save everything.
Letter from Employer
One of the most common items you will need when you get audited is a letter from your employer stating that they do not pay for your expenses. Without this letter the IRS can argue that your employer pays your expenses and you could be in trouble for deducting them. Since the IRS often audits 2 or more years later, make sure you get this letter in case you get fired or leave on bad terms.
If you work for an employer out of a home office, you will need a letter from them stating that this arrangement is more convenient than travelling to their nearest location.
If you plan on deducting any automotive or fuel costs, you need to keep a log of everything your car does. You also need to save any receipts from oil changes or annual inspections because they will show proof of the miles you traveled.
The log you keep needs to be very accurate because the IRS will check this log against bills and receipts. For example, if you deduct the expense for traveling from Atlanta to Birmingham on the 23rd of January, the IRS could prove this to be false because they might have a bank statement or a receipt that says you ate at McDonald's in Savannah on the 23rd of January.
Always take your job into consideration when deciding what to deduct. For example, if you are a computer programmer it would seem suspicious to have a large deduction for travel or fuel expenses. Similarly, if you are a truck driver it would look odd to have a large deduction for home office expenses.