What is a Business IRS Audit?
Business IRS Audit | The Internal Revenue Service (IRS) is a bureau of the Department of the Treasury and is responsible of collecting owed taxes and processing tax returns. Americans file taxes once a year but if you are a business owner or are self-employed, maintaining accurate financial records is important in case you are audited. That’s why having a professional business accountant and bookkeeper is crucial for your business’s success and your peace of mind.
What is an IRS Audit?
An IRS audit is an in-depth examination of financial records to assure the information reported is accurate. Now, the IRS can conduct an audit on individual financial records but this blog will focus on business audits. Keep in mind, that many of the tips are helpful for individuals as well.
The IRS usually conducts business audits at random. However, if financial records are not maintained accurately, it could raise suspicion and red-flag your business for an audit.
Common mistakes are found in :
- Not reporting officer wages for S- Corporations
- Rounding numbers
- Expensive meals or entertainment expenses
- Home office deductions
- Vehicle or mileage expenses
What Happens During a Business IRS Audit?
The IRS will notify you by mail if your business is selected for an audit. Please note that any phone calls or emails could be a scam. You should contact the IRS directly to confirm your status with them. Your audit can be held at your home, business, or at the local IRS office. Your letter will provide the required documentation, date, time, and location. Some audits may be by mail. However, a face-to-face audit is usually expected for business owners considering the amount of documents for review. The IRS typically reviews financial records within the past 3 years but there are cases when they may research more years.
Follow these tips to help prepare for your business IRS audit:
- Your letter usually requires a response within 30 days. Respond before the deadline.
- Contact your accountant as soon as possible and send them all copies of the letter.
- Collect all required information but make copies for the auditor. Keep the originals for your reference.
How Can I Avoid an IRS Audit?
Avoiding an IRS audit is not possible as they are usually chosen at random. But, you can be prepared for one to avoid issues and fines. Hire a professional business accountant and bookkeeper. Maintaining business financial records can be overwhelming. You can avoid inaccurate financial record keeping by having a professional handle it. Also, if you are selected for an audit, your accountant will have your documents neatly prepared for the auditor to quickly review. You can’t avoid an audit but you can avoid the headache and stress if selected.
Ash Wasilidas, CPA Firm Accounting and Tax Services in Whitinsville and Framingham MA offers business accounting, bookkeeping, tax services, and consulting. Our CPA firm has over 25 years of business auditing success. Schedule a free business consultation in Whitinsville or Framingham MA today. Call (617) 462-6651.