Everyone has some form of tax anxiety. This anxiety can stem from the fear of audit, the unknown, or the amount paid in taxes. We have all heard the term innocent until proven guilty. That’s the society that we feel we live in. But with the IRS, it is the opposite. You are guilty until you can prove yourself innocent. That’s right, you are not innocent until you can show them you didn’t do it. Outlined below are some ways to lessen the chance of an audit and be ready in case you ever get one:
Why do people get audited?
This question is hard to really pinpoint but there are a few common threads you see when people lose an audit.
- Bad Record Keeping – Your record keeping is the basis to running a successful business from an accounting side. Record keeping can be as simple as a notebook or as grandiose as a computer program. Make sure to sit down and take the time to organize your information instead of using a shoebox method at the end of the year. Garbage in = Garbage out
- Bad Advice – Your neighbor’s tax return and your tax return aren’t the same. When getting tax advice, please make sure someone is accredited or make sure to go directly to the source, the IRS. The IRS has recently started providing some tax training for business owners. https://www.irs.gov/businesses/small-businesses-self-employed/subscribe-to-e-news-for-small-businesses
- Guessing on a Tax Return – When it comes to your taxes, it is best to know as opposed to guess. When in doubt, figure it out or have someone do it for you. The IRS knows where they want items reported. It is up to you to provide them with the correct information. A lot of audits are started by careless errors.
- Falling behind and being negligent – This is fairly common and the IRS views this as low hanging fruit. If you fall behind and rush in returns, its most likely you got overwhelmed and missed key points. Make sure to take your time and document. If you are behind, don’t take an expense unless you can prove you had it.
How does the IRS audit you?
The IRS audits will always begin with letters. They will not call or come to your house as a first line of action. If you get a call that claims they are the IRS, this is a common scam.
What to do if you get audited?
- Gather your Alibi – Once again, the IRS treats you as guilty until you prove yourself innocent. You have to form an alibi. This is done through your records and the paper trail that business owners keep. If you don’t keep mileage logs and other documents, you will most likely not be able to prove those expenses in case of an audit.
- Correspond through Representation – If you hire someone to handle the audit, let them be the ones that communicate with the IRS. The IRS speaks a different language than the everyday person, so it’s best to have a translator on your side.
- Be Patient – The IRS is not quick. They take months to clear issues. When responses are sent in, please make sure to practice patience as they process your response.