Being a small business owner is not for the faint of heart. Every day brings a new challenge and a new stress. For many entrepreneurs, an IRS audit is one of these stressors. However, business owners can increase their chances of sailing through the audit unscathed by taking a few simple steps.
1. Know What to Expect.
When people hear the word ‘audit’, they have visions of men in suits tearing through their office. However, about three-quarters of self employed IRS audits are performed through the mail. The reason for most audits is that the Schedule C only has summaries, and the IRS wishes to see the numbers behind these. A small business owner can merely supply the details through the mail and the audit will be closed.
There are a few details that may be requested in self employed IRS audits. Copies of mileage logs are a common request, or the accounting behind claimed deductions for travel and entertainment. Most auditors will ask for very specific information.
However, one quarter of small business IRS audits are the dreaded ‘field audit’ in which an IRS agent will visit your business and/or home. These look at a broader range of information and are significantly more time-consuming.
2. Decide If a Tax Professional Is Needed.
Many business owners can handle a correspondence audit on their own. However, there are times when a tax professional is necessary even for these. If you have a correspondence audit and don’t know whether you have the documentation that is requested, you definitely need a CPA on your side. In addition, all field audits require a tax professional. If you are located in Florida, New York, Maryland, Washington D.C., or Utah, Gary M. Kaplan can give you a free consultation.
While a tax professional’s services will vary according to your needs, there are a few ways that they provide assistance in an audit:
• Contacting the IRS to determine and limit the audit’s scope.
• Helping to justify deductions.
• Advising about which documents to disclose.
• Communicating with IRS to reduce or waive discretionary penalties.
• Identifying which IRS requests are reasonable and which should be curtailed.
While audits are challenging, a tax professional is skilled in dealing with the IRS. This can reduce an entrepreneur’s stress while increasing the chances of having a favorable resolution. If you are facing an IRS audit, contact Gary M. Kaplan today.
