For small business owners, finally getting their taxes filed may be the beginning rather than the end. The Internal Revenue Service can review your taxes and decide it wants a closer look. Thus, you may learn your business faces an audit.
You can get audited even if you did everything correctly. The IRS sometimes chooses to audit businesses and individuals based on a computer algorithm. In other cases, tax returns can raise red flags that draw auditors’ attention.
Why did the IRS select you?
Common issues that can give rise to audits include deductions that appear disproportional, lots of round numbers and mathematical mistakes. Discrepancies and omissions on your forms can also ring warning bells. Even for a small business, taxes can become complicated, so it may be advisable to work with a professional when figuring out matters such as deductions and recordkeeping.
How do you find out you face an audit?
If the IRS selects you for an audit, you should receive a notice by mail. The IRS will usually not call you before sending a notice; if you receive a phone call from a person claiming to be from the IRS, check for signs it may be a scam and avoid divulging payment or personal information. An IRS representative may contact you later to set up an appointment.
The IRS sometimes conducts correspondence audits, where it requests you to mail in specific records. In other situations, IRS representatives may visit you to inspect your records and interview you.
What can you do to prepare?
Preparing for the audit can help you get through the process better. Make sure you have all necessary records on hand in an organized manner. Prepare to produce evidence to back up any claims for deductions. You should be aware that, for a business, the IRS will usually look not just at your income and deductions, but also at related matters, such as whether you have handled employee taxes appropriately.
Getting help from an experienced tax attorney is important. Be sure to discuss issues that could raise problems, such as recordkeeping errors. For some people, the audit is the end of it. For others, it can result in an assessment of back taxes and penalties, and sometimes, even criminal charges. Being well-prepared from the beginning can increase your chances of a positive outcome.