As a small business owner, you probably have a list of things you hope never to experience; things like bankruptcy, litigation, and the dreaded IRS audit notice. Though the chances are slim, an IRS audit can happen to any small business owner. Sometimes they’re triggered by a mistake or unusual reporting on your tax return, other times they’re completely random or connected to a related examination.
Receiving an audit notice is understandably stressful but knowing how to respond can ease some of your worries. If you one day discover that IRS notice in your mailbox, this blog can help guide you through what to do after an audit.
5 Steps to Take After an Audit Notice
An audit notice can be alarming but it doesn’t have to lead to a difficult process. These 5 steps will put you on the right path to a straightforward solution:
1. Know Your Rights
As a taxpayer, you have the right to know why you’ve been selected for an audit. The Taxpayer Bill of Rights further states that you deserve to have “clear explanations” regarding notices and correspondence with the IRS. Don’t be afraid to speak up and request more information if you don’t understand the audit notice. You also have the right to challenge or appeal an IRS decision, so don’t assume that you’re required to accept anything without question.
2. Verify the Audit Method
After receiving the audit notice by mail, read the document carefully for further instruction. Audits can be conducted through mail or an in-person interview. If the audit is performed in person, this can generally be done at an IRS office, your place of business, or at an accountant’s office.
3. Be Cooperative
It should go without saying that cooperating with the IRS is the best strategy to take. You’ll likely need to provide documents such as receipts, bills, legal papers, loan agreements, or a Schedule K-1. The IRS may also request that you complete a questionnaire. The IRS states that it will accept some electronic records that have been created by tax software, but you’ll need to contact your auditor to confirm.
4. Respond on Time
Just as tax returns are due on a specified date, the IRS will expect you to respond to an audit notice by a certain deadline. However, you may be able to request an extension. If your audit will be conducted by mail, you can likely receive a one-time 30-day extension. You’ll need to contact the auditor directly to extend an in-person audit interview.
5. Consult a Professional
In addition to your right to understand the “why” of your audit notice, you’re also entitled to use an authorized representative to handle the audit itself. The Audit Defense team at 1-800Accountant is fully certified to perform the necessary work of a tax audit and communicate with the IRS on your behalf. We understand all the nuances in tax laws and can help you through the process. Whether you agree with the audit findings and accept the changes or disagree with the proposed changes and want to file an appeal, the Audit Defense team will do all the heavy lifting to give you peace of mind.
3 Best Practices to Stay Prepared for an Audit Notice
While there’s no sure-fire way to prevent an IRS audit, it never hurts to be prepared. Keep these ongoing best practices in mind to help make the audit process a little less stressful:
1. Maintain good records
If you’re selected for a tax audit, the last thing you want to do is scramble around to find the right documents. Without a proper record management system in place, you’ll face the risk of spending hours searching through filing cabinets, computers, or file boxes. Make it a habit to keep good financial records so you can easily access the documents you need. Spreadsheets and bookkeeping software are two common methods that can keep you organized.
2. Beware of Scams
Criminals love nothing more than taking advantage of people when they’re at their most vulnerable. Were you contacted by someone claiming to be with the IRS? If so, you’ll want to be on your guard. The IRS states that audit notices will be given by mail, not by telephone. Scammers have also been known to demand immediate payment such as a prepaid debit card or wire transfer. They’ll also threaten to contact law enforcement. Don’t fall for it!
3. Outsource Your Accounting
Managing the day-to-day operations of a small business is stressful enough, so why not hand over the accounting duties to a professional? Hiring a tax professional like a certified public accountant (CPA), enrolled agent (EA), or attorney can help ensure that your business complies with tax laws and various state, federal, and industry-specific regulations. Having a tax professional already in your corner will be a huge relief if you receive an audit notice, as he or she will be familiar with your situation.
An audit notice from the IRS isn’t something that most small business owners want to face. It can seem totally unfair if you’re randomly selected. However, failing to respond and cooperate will only lead to more trouble down the road. Take the time to understand what to do after an audit. This way, you’ll be better prepared when and if that notice arrives. To gain even more confidence in your overall accounting strategy, contact 1-800Accountant today and talk to an expert.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.