As a small business owner, you know that filing taxes is just part of the game. That’s why you take great pains to make sure you file everything as accurately as you can.
However, if you make a mistake, the IRS is likely to notice and when they do, you’ll end up facing an IRS audit. Keep in mind that audits aren’t all that common. In fact, only 1 percent of businesses end up getting audited each year.
This might seem like good news, but it also means there’s not a lot of information on how to handle an impending audit. Here are a few things to keep in mind if you get a notice from the IRS.
Understand Why You’re Getting Audited
The IRS doesn’t audit businesses without a clear reason. They actively look for discrepancies in your taxes before making the decision to investigate further. If they notice something that doesn’t add up, they’ll send you a notice outlining the reasons for the audit.
Read that notice and make sure you understand why they’re digging deeper into your business’s finances. If you have questions or feel confused about the language used in their notice, don’t hesitate to contact the IRS for clarification.
Remember, they’re just trying to make sure you’re paying the amount of taxes that you owe. They’re more than happy to explain things so you can better understand the situation you’re in.
Gather Your Records
Once you receive the audit notice, start compiling the necessary records and documents together. The exact documents you’ll need will vary based on the reason you’re getting audited and the type of business you run. The notice should outline specific information the IRS needs you to provide.
No matter what the reason for the audit is, it’s a good idea to gather your most recent bank statements and any receipts for payments or purchases you made with your business account. If you have electronic invoice statements and records, try to gather them together, too.
If you comingled your personal and business finances throughout the year, make sure you provide the necessary statements for both accounts. Even if you’re not sure how to sort through the information, the IRS auditor will be able to take care of it.
The more information you can provide during the audit, the better off you’ll be.
Communicate With the Auditor
When you’re dealing with a tax audit, the IRS will assign your case to a designated representative. They’re your main point of contact throughout the entire process.
Let them know if you have questions and keep them updated with your progress in compiling the necessary documents. If they ask you questions about your business’s tax situation, do your best to answer them as thoroughly as possible.
Think of every interaction you have as an opportunity to learn how to better prepare your business in the future. Remember, it’s not the auditor’s fault that the IRS is investigating your business. Treat them with respect and keep the lines of communication open whenever possible.
This will help you navigate the entire process more quickly and can alleviate the stress associated with those audits.
Be Patient and Answer Questions Accurately
Undergoing IRS business audits is stressful and can leave business owners feeling defensive. After all, you did what you could to file everything accurately and their audit just distracts you from being able to do business as normal. The longer you’re dealing with the auditor, the more your business stands to suffer.
While it’s tempting to get impatient and rush through the process just to get it over with, don’t.
Take your time and be patient when you’re dealing with the auditor. Review and double-check every document before you send it to the IRS for further investigation. Making mistakes and sending in the wrong information can actually delay the audit and keep you from being able to get back to business as normal longer.
Get Help With the IRS Audit From Your CPA
Though you might feel like you’re alone when you first receive a notice of an impending audit, you’re not. In fact, you’re free to get help from your business’s accountant or CPA throughout the entire audit. Your accountant can help make sure you’re submitting the right documentation and can help you organize the information to further streamline the process.
Keep in mind that only a CPA or a professional tax attorney can represent your business during an audit.
If you don’t have a CPA already, dealing with a small business audit is a surefire sign that you need one. Visit this website to learn more about what to look for when choosing an experienced CPA.
Resolve the Situation or Fight Back
In many cases, the IRS audit will only uncover small issues. Those issues are easy to correct and may not negatively impact your business. However, some businesses end up facing serious fines and tax penalties after the fact.
Once you receive the IRS’s verdict, you’re given two choices: resolve the discrepancies on your own or fight back.
If you choose to fight the decision, you’ll need to work with an experienced tax attorney. Look for an attorney that’s familiar with businesses like yours and has helped resolve situations like the one you’re facing.
Tax Audits are Serious
Facing an IRS audit can be alarming even for the most established business owner. If you’ve received a notice telling you that your business is getting audited, don’t panic. Keep this guide in mind and you’ll be able to handle the situation with confidence.
Just remember to be patient, calm, and helpful when working with the auditor. The more communicative you are, the easier the process will be.
Looking for more tips to help you streamline your small business’s taxes? Check out our latest posts.