Taxes are a part of running any business. Sometimes the IRS wants to audit your business to make sure you’re paying your taxes and meeting all regulations appropriately.
In this episode of MissionBusinessPodcast.com, Bernard Roesch will talk through how an audit works, how to prepare, and best practices you can use to avoid audits in the first place.
If you have any questions about this podcast episode, please feel free to contact us.
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Why Businesses Get Audited By The IRS
There are a range of reasons why a business might get audited by the IRS. Sometimes the IRS selects businesses randomly for audits.
- Even if you haven’t done anything listed below, there’s a chance that you can get audited just based on this random selection.
- The IRS also looks for tax returns that are prepared incorrectly with numbers missing or missing key forms.
- In those cases, the IRS may perform an audit on those specific parts of the tax return or on the entire tax return, or on the entire business that filed the tax return.
- Finally, the IRS might audit you if your financial ratios seem significantly different than other or similar types of businesses in their database.
The IRS has access to a lot of data about businesses. So if your business looks odd for any for any reason, that alone may trigger an audit.
How Does An IRS Audit Happen
The IRS audit process typically follows the below steps.
You receive a notice in the mail – The IRS will send you a letter about their audit. This will come on formal letterhead from the IRS. It contains specific next steps to move forward with the audit. The IRS will not contact you via email or phone. So if you see that type of information, there’s a chance that it is fraud.
You should still investigate if the IRS is trying to contact you, but do not provide any secure information if you’re contacted by the IRS via email or phone.
What does the IRS want to audit – In your letter, the IRS will provide details that they want to perform an audit for. This could be specific questions about part of your tax return, or broader questions that will be discussed in a more comprehensive audit. The letter will make clear what the next steps are.
Sometimes the next step will be to provide specific information to the IRS via mail so they can complete their audit independently. Other times, they will ask to arrange a meeting to discuss more detail.
Coordinate with your tax preparer – If you had somebody help you file your taxes, you should contact them as soon as you receive the IRS audit letter. They may be able to provide some guidance on how to move forward, and it’s best to have them involved from the beginning since they were involved in filing the return that is being audited.
They can also be helpful to manage the process and make it less stressful and even help you negotiate for tax savings as part of the audit process.
Finish the audit – Depending on the complexity of the audit, it could be as simple as sending in clarifying material to the IRS and getting a letter confirming the audit’s been closed. Or it could be a series of meetings that goes on for months.
Best Practices To Avoid An IRS Audit
There are a lot of reasons why the IRS may audit you, but there are also some best practices that you should have in place in your business to avoid an audit.
- Ensure your tax return numbers are correct – Make sure that your tax preparer has filed the appropriate information for your tax return and the numbers are correct. If you use a tax preparer, make sure that you review all the information yourself as you are ultimately responsible for the material of your tax return.
- Provide the correct forms – In addition to the actual numbers in your tax return, there are a number of forms that often need to be provided depending on your business. Make sure that these forms are provided with your tax return to avoid being audited.
We Can Help You
If you have additional questions about how to manage an IRS audit or other financial aspects of your business, , contact Bernard today.
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.
[Image: https://www.flickr.com/photos/teegardin/5512347305/ ]
Podcast: Play in new window | Download