Audit can be a scary word, especially if you’ve never dealt with the IRS in that capacity before. But audits can happen anytime, and they can be somewhat common when you have a small business where tax-keeping procedures may not be as straightforward as in other situations. Audits can be completely random, but they also often occur because of a red flag. It’s best to do everything possible to avoid any red flags in your tax documents but also be prepared in case an audit does happen.
Practice good record-keeping
An audit is done to ensure that your business is complying with all legalities and that you are operating under the proper regulations related to your industry. It’s important to keep good records of all business transactions. This includes expense receipts, payroll information, records of income and statements from all financial institutions where you have business accounts. Most audits simply require you to send the IRS documentation, but in-person audits do also happen on occasion. Keeping your records organized can greatly lessen the stress if you’re asked to provide additional documentation.
Seek advice from professionals
Even if you feel comfortable completing your business-related tax documents, it doesn’t hurt to seek advice from a professional. You may want to do a consultation every few years with a business-minded accountant who can help you find any issues that may need to be corrected. Some professional services can come with audit protection, which could help you immensely if you ever did have to undergo an IRS audit.
Small business audits are not common, but they do happen. If you receive a letter from the IRS, don’t panic. If you don’t understand exactly what they are requesting, seek help from an expert. Keep copies of everything you receive along with a copy of the documents you send them. In most cases, audits must be done within three years so it’s important to keep your tax information from each year for at least three years, although some recommend you keep the information for up to seven years.
Audits are never fun, but with good record keeping, you can be prepared. Keep your business-related financial records for the recommended time based on your situation. If you do have to go through an audit, ask for help from a professional if you need it.