Audit-Proof your Small Business Tax Return

Audit-Proof your Small Business Tax Return

Audit-Proof your Small Business Tax Return

Tips on Avoiding an Audit

Tips on Avoiding an Audit

Although there is no way for a small business to avoid an IRS audit with absolute certainty, there are some steps that can be taken to minimize the chances of being selected. In addition to being one of the categories targeted for audit by the IRS, there are certain conditions that make the chances of a small business being selected for an audit more likely. Because business tax law is so complex, it may be advisable for a small business owner to consult with a business tax professional in order to avoid some of the common problem areas.

The list below includes some important areas of focus in audit-proofing a business tax return:

  • Classifying Workers

One common audit red flag is the misclassification of employees. The IRS provides specific guidelines as to when a worker should be classified as an independent contractor rather than an employee. Misclassification not only has the potential to trigger an IRS audit but can also result in owing back employment taxes as well as interest and penalties if the IRS determines that a worker should have been classified as an employee rather than an independent contractor. In order to avoid a problem in this area, all workers with similar job descriptions and responsibilities should be classified the same way and worker classification should be kept consistent from year to year.

  • Reporting Business Income

As the methods available to the IRS for detecting unreported income become more and more sophisticated, it becomes increasingly important for small businesses to accurately document and report all business income. Audit guidelines developed for various industries now enable the IRS to detect when business income falls outside of established parameters and to flag a business for an IRS audit when this is the case.

  • Claiming Credits and Deductions

The IRS tends to audit business tax returns that claim excessive tax credits and tax deductions. Although a business should claim all credits and deductions to which it is entitled, eligibility guidelines should be carefully checked before a tax write-off is used. In addition to reviewing various published guidelines, a business can request a private letter ruling if they are unsure as to whether a specific tax credit or tax deduction can be used.

  • Following IRS Guidelines

The IRS has created guidelines for many industries and professions as well as over three dozen audit guides to be used by IRS employees when evaluating business tax returns from various industries. These various publications contain important information as to what the IRS is looking for when they select a business tax returns for an IRS audit.

  • Submitting an Error Free Return

One of the most important ways to avoid an IRS audit is to submit an error free return. Some of the most common business tax mistakes are 1) missing or incomplete forms, schedules and balance sheets, 2) incorrect sequencing of forms and 3) missing or duplicate quarterly employment tax returns. These errors, among other inaccuracies, increase the probability hat the IRS will select a return to be examined with increased scrutiny.

If your business is seeking business tax or business accounting solutions, our experienced professionals can provide you with the expertise you are looking for. Visit us today at to learn more about our full range of business tax and accounting services. Contact us by email at or by phone at (866) 676-9417 to receive a free, no obligation consultation.