Businesses often dread the end of the calendar year because it signals the start of the tax season. If you are a business owner, it means you are preparing for invoices, receipts, and other financial documents from the past year. Moreover, you have to deal with a possible tax audit.
Although an audit may seem stressful and overwhelming, you do not need to panic. Audits are processes when the IRS deals with simple data and checks errors that might have been reported. Business owners should know that a tax audit needs to end badly for taxpayers.
If your business gets audited by the IRS, here are the steps that are needed in order to minimize the negative impact on your business.
Understand the Audit Letter
As soon as you receive the audit notice, open it promptly and understand what information the IRS requires from your business. If you do not have an in-house financial consultant, then hire the services of a tax attorney or an accountant who will help you go through the audit process and identify the concerns that the IRS has pointed out. Make sure that you are prompt when responding to the letter and never ignore it. The IRS will not go away and not acting on it will only make the auditor more suspicious.
Business owners must be vigilant to know a real audit notice from the IRS. The IRS always sends a mailed letter and they do not send emails or leave messages in order to obtain your personal data. They do not communicate with taxpayers through these methods.
Organize Your Financial Records
Before responding to the IRS, you and your tax professional must take the time to find and organize your business records from the past twelve months. You should have invoices for income and expenses, receipts, canceled checks, bank statements, hard copies of tax-prep data, accounting books and ledgers, as well as leases or titles for your business properly. You also have to make sure that specific documents that the IRS has requested must be accessible.
Only Disclose Information That's Asked
When you meet with your auditor, you will be asked various questions regarding the information that is reported on your income tax return. Experts say that you should not give information that is not asked of you. If you provide unsolicited information, this might lead to more questions. Moreover, do not make excuses when responding to questions. In addition, to not bring tax returns that are not in question.
Involve Your Tax Professional
It is stressful to deal with the IRS. If you are concerned with your statements, then you should allow your tax professional to speak for you. You can provide the IRS with a signed power-of-attorney agreement so that they will have to deal with your tax professional directly. Moreover, in cases when you do not give the special power-of-attorney to your tax professional, they must always be present whenever you meet with an IRS auditor. It is recommended that you must not be hostile or defensive during interviews.
You should be reminded that the auditor does not forgive tax debt or mistakes. Moreover, any admission from your side will be used against you. It is not in your best interest to show an antagonistic attitude as you will alienate the auditor.
Avoiding Future Audits
Business owners must be reminded that audits are done randomly. An audit from the IRS cannot be prevented entirely. However, there are companies that are really selected because of declared expenses that are out of the ordinary. These are expenditures that are considered ‘red flags'.
You should keep track of financial records and bank transfers that are beyond your receipts. You should also explain on paper anything that cannot be explained on the standard IRS form. You should also double-check all of your accounting before filing.
Another audit you may be chosen for is ZPIC. Basically, ZPIC encompasses private government companies who are responsible for protection against abuse, waste, and fraud within the Medicare network. To avoid a ZPIC audit, vet your claims data as this is the primary source of information used to determine and target such unlawful activities. If your claims' utilization and billing methods are outside of the norm, there's a higher chance you'll get audited.
In the world of business, you should always be on the lookout for an unwelcome audit from the IRS. However, following the steps provided will make it easier for you to go through this tedious process.