Taxes can be a complicated and daunting process for everyone, especially student debt borrowers. Many people repay student loans early in their adult lives when they do not have too much experience handling tax issues and completing the paperwork needed to be compliant with federal and state tax requirements. Sometimes, taxpayers may be audited, which means that tax authorities review documents and check information to make sure that statements made on tax forms are accurate. Although this can be a scary process, handling a tax audit while repaying student loans can be easier if you keep a few things in mind.
The year after I graduated from law school, I had to deal with a tax audit. I remember receiving a scary letter from a tax authority in the mail and wondering how I would deal with the audit to make sure that it was handled as quickly and as painlessly as possible. Along the way, I learned a few ways at handling a tax audit while repaying student loans.
The first strategy to implement when handling a tax audit while repaying student loans is to save everything. Tax returns involve a number of documents including paystubs, W2s, 1099s, and other forms. This is also true for documentation that supports entitlement to student loan tax relief, like deductions for student loan interest and credits for expenses paid for tuition and related costs.
Whenever, I received a tax form in the mail, I would make sure to scan everything and save the documents in a folder in my email account. I downloaded an app on my phone that used my phone’s camera to make really good scans of documents I received in the mail. I thereafter knew that even if I lost the paper copy of documents I received, I still had a record of the materials somewhere. I also employed this method for any tax notices I received in the mail so that I did not lose any notices and could consult these materials at a later time.
Tax audits oftentimes require the taxpayer to submit materials related to tax returns. If you keep a scan of all of the documents that relate to your taxes it will be easier to produce records if requested by tax authorities. I believe that promptly furnishing all of the documents requested by tax authorities helped me greatly when handling a tax audit whole repaying student loans.
Another important strategy for handling a tax audit while repaying student loans is to submit information and materials as soon as possible. It oftentimes takes tax authorities weeks or months to close a tax audit. Indeed, every time they send a notice or you submit materials, there is oftentimes a long period of time during which the tax authority reviews materials and sees how they reflect on the audit.
The sooner that the taxpayer submits all of the required documents, the sooner the tax authority will be able to close their file on the audit. Of course, taxpayers should not send incomplete materials since this will probably just delay a tax audit even further. However, if taxpayers move expeditiously to compile all required documents and submit these materials as soon as possible, it is likely the audit will be as painless as possible.
Another important part of handling a tax audit while repaying student loans is to not hesitate to pick up the phone to speak with the person examining the file. There can sometimes be a tendency to avoid confrontation and just communicate with individuals through emails or through letters. In certain instances, this can be important toward creating a record about certain matters.
However, issues can oftentimes be solved much easier if people speak by phone. Moreover, a tax professional might be more likely to give your file attention if the tax professional has a personal connection with the taxpayer. Sometimes, it is impossible to speak with a tax professional by phone, but when this is a possibility, student debt borrowers should speak to tax professionals about an audit.
Another important strategy to handling a tax audit while repaying student loans is to always have money available to pay more taxes in case additional taxes are due. After a tax audit, it is possible that tax authorities will find errors in tax forms that require a taxpayer to pay more money. This can be because certain deductions are not allowed, income was not reported for a variety of reasons, or other circumstances.
It is important that a taxpayer pay the amount of taxes due as soon as possible after receiving a notice from tax authorities. If taxes go unpaid, it is possible that interest and penalties may accrue on the taxes that make it more difficult to pay the money owed. Every student debt borrower, especially those that pursue side hustles, should keep money aside to pay additional taxes owed since it is not uncommon for withholdings alone to not cover one’s total tax liability.
All told, handling a tax audit while repaying student loans can be a scary process, especially for people who do not have much experience with tax matters. However, with a few strategies in mind, it can be easier to handle a tax audit and satisfy all monetary obligations that are owed by a borrower.