Although only 2.5% of small businesses get audited, it can be something most of us worry about. For the most part, there are specific reasons the IRS audits a business. Let’s take a look at what those triggers are, what happens if you do get audited, and ways to avoid audits.
The largest thing that the IRS looks for when deciding to audit a business are consistent losses over several years. They also see if you’re running a cash-based or solopreneur business as this type of business is harder to track. If you have never-ending deductions or never file on time, these can also be triggers for the IRS. All these can point to, or are common with, fraudulently-run businesses.
If your business receives an audit letter from the IRS, the first step is to hire a CPA or EA that specializes in audits. You should also start getting every last shred of evidence you have ready and organized. This includes every bank and credit card statement, receipts, invoices, and bills. For the most part, you’ll want to gather at least 2 to 6 years worth of evidence. Also make sure you know the tax return that is being audited to be prepared when answering questions. Know that if discrepancies are found, you will face charges for unpaid taxes, penalties, and interest.
To protect yourself and your business from an audit, make sure you work with a bookkeeper who niches in your industry. They can help you decide what deductions are best for your business. A bookkeeper can make sure your books are accrual-based, if possible. Your books will always be accurate and up-to-date. They can also help you with receipt-saving. Most importantly, always file your taxes on time.
The best way to make sure your business is protected from the IRS is by doing your part to maintain accurate bookkeeping. Receipts may be an annoying item to keep but are important to proving your innocence in the event of an audit. Working with a quality bookkeeper, such as Aladdin Bookkeeping: Bookkeeping for Contractors, can bring down the risk of an audit and help you maintain accurate bookkeeping. Make sure you don’t become a part of the audit percentage.
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