Advise For Small Business Owners Facing a Tax Audit
If your business is facing an audit it can be scary; but it is important to remember that not all audits come about because the IRS has found a serious issue. The IRS assigns each tax submission a DIF score (discriminate index function). The higher the DIF score, the more likely an audit will be issued. The scores are assigned based on computer screening, random sampling, and document matching such as an employee reporting different earnings that what your business reports. Most audits are the result of small errors. Things like math errors, transposed numbers, or a high number or value of deductions are red flags and can result in an audit.
When you first are issued an audit, it can be overwhelming, but the first step to get through it is to read the letter carefully. In it will be all the information you need to get the audit dismissed. Typically, you will have 30 days to respond, but do not delay because your debt will continue to accrue until the issue is resolved.
It is always a smart idea to seek professional help—whether it is in the form of advice or legal representation. A CPA will have intimate knowledge of the tax laws and lingo so he/she will be able to lead your small business audit. It is imperative that a CPA goes with you to any in-person audits, as he/she will best be able to explain the questions that the auditor asks of you.
After you receive an audit, gather the documents that the IRS requests. All the tax documentation for your business should be organized by year so that receiving an audit does not result in you searching through piles of old paperwork to find what you need. Provide the IRS with copies of any of the supporting documents that the IRS asks for—and again the quicker you comply, the better it is for your business.
With organized tax documents and the help of a CPA, most audits can be resolved fairly quickly. Of course, the best way to keep the taxman out of your hair is to check your math, and make sure everything is reported truthfully before you sign on the dotted line.
Hewitt, John. “Facing an Audit? Here are the Steps to Take When the Taxman Comes”. enterepreneur.com. 19 Sept. 2014.
Washington, Kimberly. “4 Ways to Beat Small Business Tax Audit”. bankrate. 21 Nov. 2012.