As a small business owner and a taxpayer, you constantly juggle various responsibilities and tasks. One of the most important aspects of running your business is ensuring that your tax affairs are in order. The thought of an IRS audit can be daunting, but with the right preparation and knowledge, you can confidently face an audit if it comes your way. In this blog post, we will discuss what a small business IRS audit entails, the most common triggers for an audit, how to avoid a tax audit and when to call in a tax attorney.
IRS Business Audit: What Is a Small Business Tax Audit?
A small business IRS audit examines a company’s financial records to ensure that the information reported on tax returns is accurate and that the correct amount of tax has been paid. This process is conducted by the Internal Revenue Service (IRS) and the IRS may conduct:
An in-person visit to your place of business.
A correspondence audit through the mail.
A combination of both.
An IRS audit does not necessarily mean something is wrong with your tax returns. It could be triggered by random selection or a discrepancy in the data reported. However, preparing and understanding the process can help reduce stress and ensure a smoother audit experience.
What Are the Most Common Small Business Audit Triggers?
Several factors can trigger an IRS audit for your small business. Some of the most common triggers include:
1. Inconsistencies in Financial Reporting
If your financial records have discrepancies or do not match the information reported on your tax returns, this may raise a red flag for the IRS.
2. Large Deductions
Claiming unusually large deductions for expenses, such as travel or meals, can attract the attention of the IRS. Make sure that you have documentation to support any deductions you claim.
3. High Income
It is not uncommon for high-income earners to be audited more frequently than those with lower incomes, as there is more potential for tax liability.
4. Home Office Deductions
If you claim a home office deduction, ensure that you meet the IRS criteria for the space and have documentation to support your claim.
5. Cash Transactions
Businesses that deal primarily in cash can be more susceptible to audits, as cash transactions are harder to track and can lead to underreporting of income.
6. Independent Contractors
If you hire independent contractors, classify them correctly and provide them with the necessary tax forms.
When to Call a Tax Attorney
If you receive a notice from the IRS that your small business is being audited, consider hiring a tax professional. A tax attorney can help you navigate the complex audit process, represent you in discussions with the IRS, and ensure that your rights are protected. Some situations in which you should consider hiring a tax attorney include:
1. The audit involves complex tax issues or a significant amount of money.
2. You disagree with the IRS’s findings and need expert representation to challenge their conclusions.
3. You have received a notice of a criminal investigation by the IRS.
4. You need assistance with negotiating a payment plan or tax settlement.
An IRS audit can be a challenging experience for any small business owner, but with proper preparation and knowledge, it is possible to navigate the process successfully. By understanding the common triggers for audits and seeking expert advice when necessary, you can ensure that your small business is well-prepared to handle any tax-related issues that may arise.
If you’re struggling with tax issues in Long Island, don’t wait any longer to get the help you need. Contact the Law Offices of Stephen B. Kass, P.C., a trusted New York law firm and CPA firm. Our tax attorney in Long Island has the knowledge and experience to assist you with tax settlements, IRS litigation/negotiations, and business bankruptcy services. Let us help you navigate the complex world of tax law and protect your financial future. Contact us today!