Getting audited by the IRS is something every business owner should keep in mind and be prepared for. Even though the chances of getting audited are less than 1%, you need to be able to prove the legitimacy of your deductions and credits and be able to verify you reported all sources of income. The IRS doesn’t say exactly what they are looking for when they are auditing a business, so when filling out your tax return, do it with the plan of being audited. Do not claim anything you can’t prove. If by any chance your business is being audited, here are some tips you need to be aware of in order to survive the process.
Read the Letter More than Once
Before you make a move, you need to understand exactly what the IRS letter says. If there is something you do not understand, ask questions. The letter will explain why the IRS is examining your business and identify which items on the return are in questions.
Gather the Docs
When you fully understand exactly what the IRS wants from you, begin gathering the necessary documents. More often than not, the IRS is looking for specific documentation to verify a claim, which is why it is important to keep proof of everything claimed. Self-employed people are frequent targets for audits; if you fall into that category, the best way to protect yourself from audits is to keep all records for a minimum of 3 years after you file a tax return.
Get in Contact with a Tax Professional
When being audited, a taxpayer has the right to be represented by a professional. If the person does not wish to be represented by someone else, he or she may just contact the professional for advice and guidance, especially if the audit is done by mail. When the audit is done in person, it is best to have a tax professional accompany the taxpayer. A tax professional understands the audit process and the tax code in more depth. They are trained to answer the auditor’s questions in the client’s best interest.
You Have the Option to Appeal
If by any chance you believe the IRS has wrongly penalized you, you have a right to schedule an appeal. The sooner you appeal it, the better it is. You will receive a letter from the IRS that will direct you on how the appeal process goes.