Tips for IRS Tax Audits

The prospect of an IRS tax audit is a scary one for the small business owner. It isn’t so much that they’re concerned about having cheated on their taxes; most small business owners are honest and do their best to pay their fair share. What they’re worried about is the possibility of a mistake.

Mistakes do happen when it comes to small business taxes, no matter how careful you are. During the course of an IRS tax audit, you can be pretty sure that the government is going to discover those mistakes, as well. In some cases, even the simplest mistakes can leave you owing hundreds or thousands of dollars in back taxes and penalties.

If your small business is subject to an IRS tax audit, there are some things you can do to try to come out of it alive:

Don’t panic. This is, of course, often easier said than done. The prospect of an IRS tax audit will send chills up the spine of just about any business owner. Still, an audit doesn’t mean you’ve done anything wrong; it just means that you’re going to have to prove everything that you claimed on your tax returns. This can be an uphill battle, but it’s not one that you have to lose.

Contact your tax professional. You’ll want to let your tax preparer know that you’re being audited. This will give your tax professional time to begin preparing the necessary paperwork and documentation that they will need to provide for the IRS tax audit process. Your tax professional may be able to offer additional services along the way that will help the audit process go smoothly.

Gather the right documentation. You’ll need to pull together all of the records that help to substantiate any of the claims you’ve made on your tax return. The IRS has the right to look at any and all records that were used in the preparation of your tax return. That means getting together all of your receipts, cancelled checks, and any other records that you used in the process.

The more organized and neat your documentation is, the easier your IRS tax audit will go. There’s a temptation to bring the auditor a box full of random papers and tell him or her to just dive in. Unfortunately, having messy and disorganized records invites the auditor to do more and more digging. More often than not, this digging results in finding more possibilities where you’ll owe more in taxes. Having your documentation arranged neatly and in an organized fashion will help the auditor to find what they need, and help you to find the documentation you might need to prove a given expense.

Pay special attention to automobile records. If you’re claiming business use of an automobile, you’ll want to make sure you can produce mileage logs, service records, and the like. You’ll want to be diligent about keeping these records at all times.

Identify any problems backing up some of your claims. You’ll want to take some time before meeting with the auditor to identify sources of income, tax deductions, and tax benefits that you’re claiming on your return. This is a good time to meet with your tax advisor, to make sure that you have everything you need to have.

Don’t make the auditor guess. If you can’t produce something to back up your claims, the IRS can estimate those income or expenses. They can also impose a penalty on your business for not having those records.

Don’t volunteer information. You don’t have to give any information to the auditor that they don’t ask for. Additional information can be a flag that they need to dig deeper. Answer their questions fully and honestly, but only answer the questions they ask.

Consider experienced representation. Depending on how the audit situation is looking and what documentation you can or can’t provide, you might consider looking at a tax attorney for some help. One mistake during an audit can be costly. By having someone represent you, you’re less likely to see mistakes happen. This can take some of the pressure off, as well, knowing that you’ve got someone familiar with the inner workings of audits advocating for your case to the IRS.

You can come through an audit unscathed, but it’s going to take some work. Follow these tips once you get that audit notice if you want to come out on top.

Find a tax expert in your area

[IMAGE LICENSE: Some rights reserved by 401(K) 2012]

Get more information 888-5-TAXPLAN | Contact