The thought of an IRS audit can make the most seasoned business owners freeze in their tracks.
"The reality is, an audit is just another part of the business owning experience. Most importantly, if you’ve been operating your business in accordance with the laws, you should be fine," offers Ebong Eka, CPA, author of START ME UP: The No-Business-Plan Business Plan
Here are a few things that may trigger an IRS audit:
- Large amounts of income not subject to tax withholding.
- Unusually large amounts of deductions claimed than seem reasonable when compared to your income.
- A large number of dependent exemptions claimed that does not agree with reported social security numbers.
- Large deductions for charitable contributions, casualty losses home office expenses, and travel and entertainment expenses.
- A change of address when not reporting a sale of your residence and not changing your home related deductions.
- People who run "cash-only" business.
- Deduction business losses (Hobby Loss).
TIPS ON DEALING WITH IRS AUDIT:
- Don’t panic, the IRS will send you a letter of inquiry that alerts you to what they are looking to review.
- Consider speaking to an Enrolled Agent, CPA or Attorney as these are the only licensed professionals that authorized to speak on your behalf to the IRS.
- It’s important to find adequate representation because they will have the experience to know why the IRS had contacted you and what they may be specifically looking for.
- Gather the necessary documents that support the amounts on your income tax return and ONLY send those documents that were requested.
- Keep your tax returns and files for up to 7 yrs.