Hyden, Miron & Foster, PLLC Law Blog

Tuesday, April 14, 2020

How to Prepare for Business Audit

With tax season upon us, one dreaded word looms in the air: Audit. While everyone seems to live in fear of a tax audit, not many people actually know what goes on during an audit. Businesses, especially, may be intimidated by a potential audit, but it does not need to be a scary experience. With proper planning, an audit can be an easy process to get through with little to no frustration.

How to Prepare for a Business Audit

The key to surviving an audit with minimal hassle is to be prepared. Preparation is key to a smooth audit process. While receiving notice of an audit from the IRS may send you into a panic, try to remain calm. Put preparation over panic as your top priority.

There are many things that can trigger an audit. Some businesses are at a greater risk of an audit if they are:

  • Cash intensive (such as retail or a restaurant)
  • Taking excessive deductions for things like entertainment or meals
  • Consistently filing taxes late each year
  • Seeking substantial reimbursements for business expenses
  • Making large charitable contributions

No matter what the reason that may have led to an audit, it is important to become familiar with the audit process. There are three types of IRS tax audits:

  • Correspondence audits: These audits occur via letter. The IRS will usually request things like additional documentation, verification, or additional information needed to correct what appears to be an error.
  • Office audits: These audits require the taxpayer to go to an IRS office. He or she will need to bring documents specifically requested by the IRS to, hopefully, resolve any lingering issues related to the taxes.
  • Field audits: These audits mean the IRS will be visiting your business. These audits are, but far, more comprehensive than the other audit types. The IRS has the authority to request any documents or tax returns from past years with some limits.

Properly complying with IRS requests is critical to surviving an audit. Make sure you are providing the correct documentation or information being requested. If you are facing a field audit, there are several steps you can take to prepare. Taking these steps will make the audit process much easier for everyone.

When you are first notified of an impending audit by receipt of an audit request, get in touch with your tax advisor as soon as possible. Your tax advisor can review the audit request and see if there may be any potential problems on the horizon. You must also get your records organized. If the IRS auditors show up to your business and your records are in disarray, this will not only aggravate them, but you may also have a penalty imposed for keeping poor business records.

Review the tax returns that are the subject of the audit. Be able to explain how the numbers on your tax return add up. This may require consulting with the person who prepared your taxes, if you did not prepare the taxes yourself. Additionally, gather all of the records used to support the figures on your tax return. The IRS has the right to look at any of these documents used in preparing your tax return. Organize the records in a way that makes sense and makes them readily accessible by the auditor.

Tax Attorneys

Facing an audit is daunting. If you have received notice of an audit, contact the trusted tax attorneys at Hyden, Miron & Foster. We will answer your questions, walk you through the process, and help you prepare. An audit does not need to be stressful. It does not need to result in disaster for you or your business. We are here to help. Contact us today.

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