Who's afraid of the IRS? Almost everyone. The key to surviving a tax audit – and even coming out on top – is not to panic or ignore the situation, but prepare.
If you receive an audit notice in the mail, it's time to set yourself up for success.
What to Do Before Your Audit
Contact your accountant. If you don't have one, now might be the time to get a good one. Otherwise:
- Review the tax returns being audited.
- Find all records that substantiate your tax return.
What to Bring to an Audit of Your Small Business
A list of items the auditor wants to see usually accompanies your audit notice. At a minimum, the IRS will expect you to produce the following documents:
- Bank statements, canceled checks, and receipts
- Electronic records
- Books and records
- Appointment books, logs, and diaries
- Records for certain equipment
- Auto records
- Travel and entertainment records
- Expenses for renting or buying property
If you go it alone, before meeting the auditor, you should follow the steps outlined above. For the best chances of success, you may want to hire – or even switch accountants – to get a fresh set of eyes on your books.
How to Avoid an Audit
The IRS audits businesses for a variety of reasons, and while you may not be able to prevent an audit 100 percent of the time, you can minimize your risk by incorporating sound business practices that come from working with a professional accountant.
Evaluate Your Current Accounting Situation
Whether you prepared and filed your small business taxes yourself, had a family member or another employee step in, or even hired a professional tax preparer, now is the time to ask yourself some honest questions beyond the audit process.
- Were you stressed out thinking about and completing your taxes?
- Did you have all the necessary documents on hand?
- Were you spending too much time away from your daily responsibilities?
- Did you have to file for an extension?
- Do you need more accounting assistance, year-round?
It may seem like a vicious cycle, but remember, the more you prepare now, the less headaches and gray hairs you'll accumulate next tax season!
Wondering if now is the right time to outsource accounting or payroll services for your small business?
Make an informed choice using our Accounting Comparison for Small Businesses >>