A letter arrives from the IRS, and your heart starts to pound. You open it slowly, dreading the contents. You read it twice in disbelief. Your business is subject to a tax audit.
An experienced CPA and tax advisor will protect your rights ensuring an optimal outcome with your audit.
You may have questions about how your audit came about and how to navigate the process, so keep reading for some tips.
What could you have done wrong?
Unless you have been intentionally hiding income or assets, chances are the IRS selected your business for an audit at random or because of a red flag, such as multiple years of reporting losses. However, as an honest business owner, there is no reason to fear an audit. A review will only confirm that you run an honest shop. At worst, the auditor will find a discrepancy or miscalculation, which you can correct through the audit process.
Nonetheless, an IRS audit can feel like a root canal. Detail-focused auditors demand copious records and ask technical accounting questions. If you are not a tax professional, this can be intimidating because the wrong answers or a lack of documentation can lead to further probing and a possible assessment of back taxes and penalties.
The IRS expects auditors to show results, so they search high and low for unreported income, impermissible deductions, and inaccurate calculations.
Anyone under audit wants to get the process over with as quickly and painlessly as possible. As tax experts with thousands of hours of experience in dealing with the IRS, Tax Avengers understands what the IRS is looking for and how to navigate an audit efficiently and avoid the pitfalls that result in continued probing.
Five Tips for Negotiating an IRS Audit
Whatever the reason the IRS targeted your business for an audit, by following these five tips, you can make the process easier and faster so you can get back to doing what makes your business successful.
Keep Detailed and Organized Records
Audit selection often occurs randomly, and it may cover previous tax years. For these reasons, we recommend business owners diligently make records of all income and expenses and keep them for at least seven years.
As a best practice, organize records by fiscal year and track down any missing documents right away. As time goes by, re-creating documentation becomes more time-consuming and difficult. At some point, it may become impossible to locate missing records, a problem that may result in the IRS recalculating the tax due and charging you for back taxes, fees, and penalties.
Important records to keep include the following:
- Legal papers
- Mileage logs
- Receipts
- Bills
- Medical documents
- Loan documents
Prepare
The IRS must inform you of an audit well in advance, which gives you time to prepare. Don’t procrastinate. Audits are a distraction and dithering only increases focus on this unprofitable event. By preparing information and records well ahead of time, you avoid the stress of rushing and have time to collect anything that may be missing. You will also have a good idea of any potential issues so that you can prepare your response.
You Don’t Have to Go It Alone
If you receive an audit notice, we recommend informing your business lawyer, tax advisor, or bookkeeper. They can assist in preparing for an audit. In addition, they can help assemble a response to a mail audit or be present during a field audit. When the IRS asks complex questions or assesses a tax or penalty, they are an invaluable resource.
Be Courteous and Precise
Auditors are there to do their job and move on to the next case. Most are happy to help taxpayers who are courteous and forthcoming. Being defensive and evasive will only make them suspicious that you have something to hide. As a rule, it’s best to remain civil and cheerful during your audit. When asked, provide fulsome answers, but do not volunteer anything unless the auditor explicitly asks for it.
Know Your Rights
Knowing your taxpayer rights is essential. You have the right, for example, to dispute the findings of the audit, so you should know the legal process for doing so. Should the auditor find a mistake and reassess your taxes, it’s essential to understand your options and negotiate the best settlement possible. Having a tax professional or CPA assist you with the audit brings about the best results.
No Need to Fear an Audit
Audits occur at random or because the IRS flags certain types of returns. The receipt of an audit notice does not mean you did anything wrong. The audit process can be quick and painless if you keep detailed and organized records, prepare beforehand, be cooperative, seek help from a tax professional, and know your taxpayer rights.
If you are subject to a tax audit or have questions about your business accounting and taxes, Tax Avenger can help. Located in Canton Michigan, we are a full-service tax and accounting firm that specializes in all aspects of business accounting and tax preparation. As tax specialists, we have more than 20 years of experience that ensures competency to minimize tax liabilities, resolve your tax issues or audit as well as put together a tax plan so that you don’t have any future tax problems.
Whether you need tax preparation, business accounting services, bookkeeping services, or help starting your business, we’ve got you covered. Call for a Free Consultation with a CPA today!