Audits can happen to any business. Small businesses are no exception. The IRS can conduct an audit on your business when your tax filing contains questionable deductions, your business is of particular interest to the IRS or by random selection. Contrary to popular belief, being audited doesn’t necessarily mean you did anything wrong. And for those who are prepared, it doesn’t have to be the end of the world.
If your small business is being audited, don’t panic. If you stay calm and seek expert help, you can get through your audit easily.
The key to surviving your audit is all in your response. Audits vary in their complexity. The IRS conducts three types of small business audits, each of which call for a different course of action. Here’s what you need to know:
Office audits are typically conducted on small businesses (usually sole proprietors, and a great reason to incorporate your business properly) with revenues under $500,000. The IRS will mail you a notice of the audit, and you will meet with an IRS agent to answer clarifying questions or provide additional documentation. It is highly recommended that you bring a CPA, a tax attorney or an enrolled agent with you when answering any questions.
Field audits are a little more thorough. An IRS agent will call you and arrange a time to come to your business office. Again, you should always have an approved representative with you when meeting with IRS agents, especially if they are going to be at your place of business. Your representative will serve as your advocate and help ensure the agent’s inquiries are limited only to relevant matters.
Taxpayer Compliance Measurement Program (TCMP) audits are much more rigorous and involve a line-by-line review of your return. Be prepared to provide supporting documentation for every entry. This is incredibly time-consuming, but an accountant can arrange an extension, help you stay organized and advocate on your behalf.
Regardless of the type of audit your small business faces, you can prevail if you remain calm, immediately seek guidance and comply with all the IRS’s requests. Ask for an extension as soon as you get your notification to allow extra response time, and take your time gathering all the documentation you need. Most importantly, do not go it alone.
When facing action by the IRS, it is easy to panic. But finding a trusted professional who can guide you through audits and other administrative headaches is invaluable in times of need.
That’s why we recommend you have a Creative Business Lawyer® by your side to help you face the many stresses of owning a business with ease. We are experienced in helping small business owners expeditiously deal with audits so you can direct your time and energy toward business growth and potential.
If you want to refocus your priorities, begin by sitting down with us as your Creative Business Lawyer® to discuss how you can implement solid legal, insurance, financial and tax systems that will streamline your business operations and minimize your risk of being audited.
This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial and tax systems you need for your business. Call our office today to schedule.