The moment you receive an audit notice, read it carefully. The IRS letter will tell you exactly what they’re examining, what documentation they need, and the deadline for your response. Not every audit is a full investigation. Most are correspondence audits where the IRS questions specific line items on your return and asks for supporting documents by mail.

Don’t ignore it. That is the single worst thing you can do. The IRS will proceed without your input and assess whatever additional tax they believe you owe. You lose any opportunity to explain or defend your position, and the resulting bill is almost always higher than it would have been if you had responded.

Don’t call the IRS yourself to “explain things.” Anything you say can expand the scope of the audit. One offhand comment about how you sometimes pay subs in cash can turn a simple document request into a much bigger problem. Let a professional handle all communication.

Get help immediately. A CPA or enrolled agent can represent you before the IRS under power of attorney, which means you never have to interact with the IRS directly. They know what auditors are actually looking for and how to present your records without volunteering information that could hurt you. Tax audit support from someone who understands your situation makes a significant difference in the outcome.

Gather your documentation. The notice will specify what records they want. For trades and construction businesses, this typically means bank statements, receipts for deductions claimed, mileage logs, 1099s issued to subcontractors, and proof of income. If your books are clean, pulling this together is straightforward. If they’re a mess, you’ll need to reconstruct records, which costs time and money.

Only provide what’s requested. Don’t hand over boxes of receipts and bank statements hoping the IRS will sort through it favorably. Answer the specific questions asked and provide the specific documents listed. Nothing more, nothing less.

It helps to understand what triggers audits for contractors and trades businesses. Large vehicle deductions, high subcontractor payments without matching 1099s, reporting significantly less income than what’s typical for your trade, and home office claims when you also rent a shop space all draw attention. Knowing why you’re being audited helps your representative prepare the right response.

Respond before the deadline. If you need more time, your representative can request an extension. The IRS is generally reasonable about timing as long as you’re communicating and cooperating. Going silent is what creates real problems.

If the audit results in additional tax owed, you have the right to appeal. You don’t have to accept the auditor’s findings. An appeal is reviewed by a completely different person who looks at the case independently.

The best defense against a painful audit is having accurate books before the audit ever happens. Bookkeeping for trades businesses that keeps every deduction documented, every subcontractor payment recorded, and every bank account reconciled means your return matches your actual financial records. When those line up, audits tend to close quickly and with minimal damage. When they don’t, that’s when things get expensive.