Tips to avoid tax audit - what if you have a tax audit?
Audits are frightening. But, you can lower your chances of being audited by putting a little extra attention into preparing your return. Even if you are audited, you can minimize the damage by preparing careful documentation.
The best way to avoid being audited, or to protect yourself if you do get audited, is to review your return before you file it and look carefully at items that might draw the CRA attention. Here are a few questions to explore:
Are you taking a deduction on a sizable loss for expenses you incurred while running a part-time business? This deduction may help shelter your wage income from taxes but it may also get you some unwanted attention at the CRA.
Make sure that you can document your business loss with receipts, to defend the deduction if you do get audited. Also, locate anything that can prove your intent to make a profit in your business, so you can show your business is for real, even if it is temporarily losing money.
Have you reported all of the income for which you received a tax document? For example, interest income, dividends.
Are you taking a deduction for expenses related to a home office? This deduction draws CRA attention, especially if you're an employee of a company.
Are you taking a deduction for a charitable donation that isn't in line with the income you've reported? You deduct the market value on your return. To determine the market value for an item, see what a thrift shop charges for a similarly used item. Keep good records supporting your donations.
If you are following the guidelines and have supporting documentation for your deductions (stored with your copy of the tax return), you don't have to avoid taking a legitimate deduction, even if it might stand out on your return. You might even consider attaching a copy of the receipt or other supporting documentation right to the return. If the documentation appears legitimate, the CRA may pass up examination of your deduction.
What to Do if You're Selected for an Audit
If you're selected for an audit, you will be notified by mail. The letter tells you what kind of audit the CRA wants to conduct. Consider engaging the services of a tax professional if your return includes complicated issues or risky deductions. You can authorize an attorney or a CGA to represent you at the examination; you don't even have to be present. If you're concerned that you will owe a lot in taxes, penalties, and interest if the CRA prevails, it's a good idea to get a professional involved early on.
If it's a correspondence audit, you receive a letter asking you for more information about certain items on your return, such as support for a particular donation to a charity, or a medical expense. You respond by sending in the appropriate documentation.
If it's an office audit, the CRA schedules a meeting with you at your local CRA office, and you will need to bring in your paperwork. These audits usually cover only a few items on your return that the CRA is interested in.
If it's a field audit, the CRA examiner will visit your home or place of business. These examinations are not very common for individuals; they are usually for business returns. You'll need to prepare your paperwork for the visit.
The CRA usually mentions which items it's questioning, so if you're scheduled for an office audit, assemble the records supporting those areas first. Get a feel for how comfortable you are with what you reported.
Here's how:
Thoroughly review your return and gather as much proof as possible to support the items the CRA is questioning. If you took a deduction that's fairly questionable, evaluate how much of it is defensible and think about how much of a disallowance you can handle. Don't volunteer this information to the agent, however: just prepare yourself mentally for the discussion.
Do not volunteer information about items on your return that the CRA isn't questioning.
Organize your paperwork before you arrive. Producing your documentation immediately when asked will speed the process and create a favorable impression.
Don't bring extra paperwork supporting deductions other than the ones the CRA is investigating. These aren't necessary, and allowing the examiner to review them could possibly open up issues better left alone.
Make sure that your interaction with the examiner is professional, firm, and even-tempered.
The most important part of handling an CRA audit is your preparation. You'll save yourself time in the long run if you are thoroughly prepared for inquiries, and if your paperwork is organized.
If you have any questions please contact me at contact@aamsolutions.com or visit my website www.aamsolutions.com
The best way to avoid being audited, or to protect yourself if you do get audited, is to review your return before you file it and look carefully at items that might draw the CRA attention. Here are a few questions to explore:
Are you taking a deduction on a sizable loss for expenses you incurred while running a part-time business? This deduction may help shelter your wage income from taxes but it may also get you some unwanted attention at the CRA.
Make sure that you can document your business loss with receipts, to defend the deduction if you do get audited. Also, locate anything that can prove your intent to make a profit in your business, so you can show your business is for real, even if it is temporarily losing money.
Have you reported all of the income for which you received a tax document? For example, interest income, dividends.
Are you taking a deduction for expenses related to a home office? This deduction draws CRA attention, especially if you're an employee of a company.
Are you taking a deduction for a charitable donation that isn't in line with the income you've reported? You deduct the market value on your return. To determine the market value for an item, see what a thrift shop charges for a similarly used item. Keep good records supporting your donations.
If you are following the guidelines and have supporting documentation for your deductions (stored with your copy of the tax return), you don't have to avoid taking a legitimate deduction, even if it might stand out on your return. You might even consider attaching a copy of the receipt or other supporting documentation right to the return. If the documentation appears legitimate, the CRA may pass up examination of your deduction.
What to Do if You're Selected for an Audit
If you're selected for an audit, you will be notified by mail. The letter tells you what kind of audit the CRA wants to conduct. Consider engaging the services of a tax professional if your return includes complicated issues or risky deductions. You can authorize an attorney or a CGA to represent you at the examination; you don't even have to be present. If you're concerned that you will owe a lot in taxes, penalties, and interest if the CRA prevails, it's a good idea to get a professional involved early on.
If it's a correspondence audit, you receive a letter asking you for more information about certain items on your return, such as support for a particular donation to a charity, or a medical expense. You respond by sending in the appropriate documentation.
If it's an office audit, the CRA schedules a meeting with you at your local CRA office, and you will need to bring in your paperwork. These audits usually cover only a few items on your return that the CRA is interested in.
If it's a field audit, the CRA examiner will visit your home or place of business. These examinations are not very common for individuals; they are usually for business returns. You'll need to prepare your paperwork for the visit.
The CRA usually mentions which items it's questioning, so if you're scheduled for an office audit, assemble the records supporting those areas first. Get a feel for how comfortable you are with what you reported.
Here's how:
Thoroughly review your return and gather as much proof as possible to support the items the CRA is questioning. If you took a deduction that's fairly questionable, evaluate how much of it is defensible and think about how much of a disallowance you can handle. Don't volunteer this information to the agent, however: just prepare yourself mentally for the discussion.
Do not volunteer information about items on your return that the CRA isn't questioning.
Organize your paperwork before you arrive. Producing your documentation immediately when asked will speed the process and create a favorable impression.
Don't bring extra paperwork supporting deductions other than the ones the CRA is investigating. These aren't necessary, and allowing the examiner to review them could possibly open up issues better left alone.
Make sure that your interaction with the examiner is professional, firm, and even-tempered.
The most important part of handling an CRA audit is your preparation. You'll save yourself time in the long run if you are thoroughly prepared for inquiries, and if your paperwork is organized.
If you have any questions please contact me at contact@aamsolutions.com or visit my website www.aamsolutions.com
posted by Tanveer Mansoor at 2:19 PM
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