Avoiding a Small Business Audit
How to Avoid a Small Business Audit
Avoiding a Small Business Audit – Although budget cuts forced the IRS to perform fewer audits last year than they had in the previous several years, small businesses remain one of the categories targeted by the audit process. In spite of this fact, there are a number of things small business owners can do to make being selected for an IRS Audit less likely. Should an audit be conducted, these same actions will help to ensure a favorable outcome.
One of the most obvious ways for a small business to avoid an IRS Audit, is for the business owners to follow the guidelines provided by the IRS at www.irs.gov/Businesses. This site contains information on most small business topics related to opening and operating a small business. It provides general information as well as information for specific types of businesses such as home based businesses, international businesses and the self-employed, among others. The site also contains links to critical business tax related topics such as tax credits, tax deductions and resolving a tax dispute. In addition to its website, the IRS has published industry – specific guides for many of the major industries which highlight items that IRS agents are looking for when they audit businesses within that industry. Becoming familiar with relevant materials produced by the IRS, is one important way for a small business to avoid an IRS Audit.
Another important way for a small business to avoid an IRS Audit, is to enlist the services of a qualified tax professional to assist in areas related to business tax preparation. Licensed CPAs, Enrolled Agents and Tax Attorneys are familiar with the documentation and reporting requirements of the IRS and will make sure that the accounting and record keeping of their business clients meets those requirements. These professionals understand tax law and stay abreast of tax law changes such as tax hikes and the addition and elimination of tax breaks, some of which are retroactive. In addition to understanding tax law, licensed tax professionals know how to apply their knowledge in the preparation of business tax returns so the client receives the maximum tax advantage without flagging the return for an IRS Audit.
No matter what other factors come into play, the most effective way to avoid an IRS Audit is to submit a business tax return that is free of errors. Any incomplete or missing form, or even the incorrect sequencing of forms, may trigger the IRS to look at the return with increased scrutiny. The following are a few of the items the IRS looks at closely when examining business tax returns: 1) deductions for bad debt, 2) travel and entertainment deductions (failure to apply the 50% limit), 3) loans to or from shareholders, 4) casualty losses (failure to reduce by the amount of insurance reimbursement), 5) general losses (claiming losses in excess of limits set by the IRS) and 5) compensation paid to corporate officers or owner employees. Although this list is by no means exhaustive, these are areas the IRS looks at closely.
If your business has been selected for an IRS Audit, our experienced professionals can guide you through the audit process from start to finish. The CPAs and Enrolled Agents at Business Tax Preparation have extensive experience in area of audit defense and have helped many business clients achieve a successful resolution to the audit process. To learn more about our full range of business tax and business accounting services, visit www.businesstaxpreparation.com. Contact us by email at info@businesstaxpreparation.com or by phone at (866) 676-9417 to receive a free, no obligation consultation.