As another tax season quickly approaches, the feared phrase “IRS Tax Audit” hangs in the back of the minds of many small business owners. Although you have been diligent and vigilant to prevent accounting mistakes, the elusive threat remains. However, there are additional steps you can take to reduce the risk of a small business tax audit.
When the numbers you report for your business do not align with data generated from outside sources, the IRS considers this a red flag.
Unfortunately, a business is not always immediately flagged for an audit after they have submitted tax returns. Several years may pass before the IRS contacts you. If this does occur, the process will go much more smoothly if you have maintained past business records, which the IRS recommends you do for at least three years, although they may ask for records up to six years prior.
Don’t panic if you receive a letter from the IRS notifying you of an audit. Often times, they are conducting what is referred to as a correspondence audit. This means the IRS is asking for more documentation to be filed with your return, which typically occurs if a math error is found or necessary documents are missing.
Three common claims that trigger red flags for the IRS are reporting unusually high or low income, or reporting a loss. If you will be filing any of those claims, then it is helpful to have those documents readily available to support your reports.
IRS business audits often trigger stress, confusion and a certain degree of chaos within the office. The good news is that you don’t have to face the audit alone. The accounting firm of Verdeja, De Armas & Trujillo, LLC in Miami possesses a highly experienced staff to assist your business—whether undergoing an audit or just starting a tax return—with all your financial and accounting needs.