According to John Gregory, tax practitioner and founder of 1040Return.com, “Approximately seven percent of the time, small business owners get the call for an audit on their business.”
“That may not seem like much,” he ads, “until you start comparing the seven percent to the millions who have filed. Then it really adds up!
5 Tips to Help Reduce an Audit
Before submitting year-end business tax return information, here are five tips to help you reduce your audit risk:
- Make sure your numbers add up, or be able to provide an explanation if they don’t. When you work in a field where 1099s are submitted, the IRS checks to ensure your return matches information they have received about you from third parties. If there’s a discrepancy, the IRS may issue you a notice, or request an audit. So, keep your numbers straight and document your jobs.
- Claim appropriate deductibles. Deductions can be tempting. However, if done incorrectly, dishonestly, or illegitimately, it could cause a red flag, which could lead to fines and/or an audit. Work with a tax professional to know up front what may be deducted and what may not.
- Pay estimated business taxes quarterly. If you expect to owe at least $500 in business taxes at year-end, make quarterly estimated payments to help reduce the risk of underpayment. Underpayment may raise a red flag and put you at risk for an audit.
- Cross examination. Did you know if you do work for a company who ends up being audited, you too could be audited? According to Kimberly Washington at Bankrate.com, “While auditing the XYZ Corp., tax return an agent may discover payments were made to ABC Co. As a result, the agent may check ABC’s tax return to ensure payments were reported. If the income was not reported, the agent may request an audit of the ABC return.” It helps to know when a client, colleague, or business partner is being audited because it affords you the time to get your documents in order as well…just in case.
- Electronic Filing. When you file your return electronically there is less chance of a data entry error than if you filed a paper form. That’s why the IRS encourages, and in some states mandates, the business return be filed electronically.
Rather than worry about the day you may get audited, work with a skilled tax professional to plan and prepare. The longer you’re in business, the greater your chances for an audit.
CPAs and tax professionals understand the regulations and methods you need to follow in order to avoid an audit. They are also there for your when you do get audited to help you understand the process and walk you through the questions the IRS may ask.
Let’s Move Your Company Forward
Contact us now to help you put your business tax return together. If you wait much longer, you may miss a window of opportunity to make needed changes before year-end.