There are often negative emotions involved when you think of a small business audit, and rightly so. No business owner looks forward to a letter from the taxman requesting a closer look at the books. If you’ve received an audit letter, don’t panic. Prepare.
These four steps will help you get through the process with minimal stress and the best possible outcome.
1. Respond promptly
Generally, if you file your taxes reliably and pay on time, there’s a good chance the government tax office contacted you for a spot check.
In this case, all that may be asked is that you provide receipts and answer a few questions. Give the tax office the information they’ve requested promptly so they can close the file quickly, and you can move on.
If an on-site audit is required, don’t avoid the inevitable. Call to confirm the date and request any information the auditor will need.
Responding promptly and cooperatively every step of the way is the best strategy for getting through an audit. Reacting defensively or unprofessionally can invite more probing questions.
2. Seek professional help
Then, get in touch with your accountant as soon as an audit is scheduled for advice and support. If you’ve been handling the books on your own, now is the time to consider hiring a tax accountant.
A tax accountant can explain the audit process, help you get your books in order, and offer personalized advice to help you prepare.
You may want to hire a tax lawyer if you have concerns that are beyond an accountant’s scope. For example, if you have unfiled returns, under-reported income, understated tax liabilities, or if you can’t validate all of your expenses for the tax year in question.
Many tax lawyers offer a free consultation. These lawyers can provide peace of mind by explaining your obligations and rights, and ensuring those rights are protected.
3. Get organized
Furthermore, an auditor will ask you to provide receipts that prove you qualify for any write offs you’ve claimed. On the day of the audit, be ready with your paperwork and be prepared to answer any questions.
Being organized and prepared shows you’ve done your best to report your taxes accurately. If your papers are in good order, it’s much more likely the auditor will wrap up once the audit’s basic requirements are met.
As a word of caution, only provide the auditor with the information they’ve asked for, no more and no less. Offering more explanation or “proof” in the hope of avoiding further questions may backfire, raising new ones. Stick to specifics.
4. Pay quickly
Lastly, in the best possible scenario, an audit won’t lead to any unpleasant surprises.
If an auditor finds that you do owe unpaid taxes, unless you have a solid reason to challenge the auditor’s findings, pay what you owe immediately. You’ll avoid accruing additional penalties, interest, fees and payments. Perhaps more importantly, you’ll be able to put the audit behind you so you can get back to focusing on your business.
A final word to the wise: if you do try to fight the taxman, before pursuing legal action weigh the cost and benefit. Legal fees can add up quickly, so be sure the amount requested by the auditor is worth what you’ll end up paying in legal fees.
P.S. you can get more information about IRS audits on the department website, click here.
P.S.S. maintaining your books can help you stay organized and be prepared. To learn how outsourcing your bookkeeping function can help your business stay organized, schedule a meeting with our team.