What You Need to Know About Business Tax Audits

What You Need to Know About Business Tax Audits

Receiving a letter from the IRS informing you of an audit is not a reason for panic especially if you file your business tax properly and on time. However, with all the other things that you need to attend to, balancing your time between managing your business and keeping track of your tax obligations can be tricky. For this reason, you can simply commit mistakes that would unintentionally give a red flag to the IRS. It is for this reason that every business should have a business tax attorney to avoid such problems and make resolutions if the need arises.

Keeping accurate records

Hiring an attorney for any reason can be expensive. Many people and business owners put off the idea of hiring a business tax lawyers unless they really have to. Oftentimes, this is a mistake that could potentially put you out of business or cost you more than what you are capable of paying. If you want to avoid hiring a business tax attorney and avoid audit from the IRS, you should keep all accurate records of all your financial transactions especially documents to prove your deductions. Organizing your records will make it easier for you to prepare your income tax returns and minimize errors.

Organizing your records

To keep track of all of your expenses and deductibles, organize all your bills in a file and keep stubs of your checkbooks. Keep your receipts and categorize them so you will know which receipt is for a particular bill. Throughout the year, keep your deductibles in a journal together with all supporting documents and track your cost basis for every property and taxable investments. This may seem like a tedious process but doing so will save you hundreds, even thousands of dollars in back taxes and business tax attorney fees if ever faced with an IRS audit.

Chances of being audited

For an average taxpayer, chances of being audited by the IRS are relatively low. However, there are certain factors that could contribute to the likelihood of being audited. These factors include large amount of charitable deductions, large business deductions, inaccurate reporting of your W-2 or 1099 form, too much itemized deductions, cash receipts that are concealed, previous records of tax audits or problems, and complex business and investment transactions.

In case of an audit

If called for an audit, you have to make all the necessary preparations. If you decide to attend an audit yourself, provide only information that is related to the audit and never volunteer additional information as you may be subjecting yourself to further investigation. Respectively, it is highly recommended that you get a business tax attorney since they are very adept in the matter and cannot be easily intimidated by an IRS agent. They are also knowledgeable in the ins and outs of the system so they know how to come up with a fair negotiation with the IRS. They will be able to correct any errors and make amendments in your tax returns to minimize the amount of back taxes you owe, if any.