Tax Audit Defense for Small Business

A common audit trigger occurs when a business tax return differs from what the IRS deems normal. For example, say you own a laundromat and are being audited for having taken very high deductions for water. In this hypothetical scenario, the IRS may compare your utility expenses to comparable laundromats in your area and flag high utility usage during your audit. However, this can be legitimate due to events that use large volumes of water like a water leak.

A successful audit defense typically involves substantiating that your tax information or tax position is correct.

An audit is much more comprehensive in scope. Typically, an IRS agent will scrutinize particular areas of your tax return and seek to substantiate your claims via proof of your financial records. If questionable patterns emerge, the IRS agent may opt to review previous tax returns.

When you use our audit defense service, we develop your custom action plan, create a communication strategy, and prepare all relevant financial accounting documents to support your case and protect your rights. Knowing you have experts on your side helps make a stressful process much easier to manage.

The optimal audit defense strategy involves seeking help from experienced tax professionals and actively engaging with the process. While the IRS can seem intimidating during an audit, they are helpful and professional with cooperative business owners. However, not every business cooperates. 

Ignoring audit notices further exacerbates issues and can lead to the IRS assessing interest and penalties based on the information they have on file, even if it is incomplete. For example, they might not have your expenses on file. However, if they have an income source through IRS Form 1099-MISC, they will assess your taxes without considering deductions. Penalties can also lead to liens being placed on your property.

We help you navigate your IRS audit in many ways. First, we clearly explain the purpose of your audit and the specific items in question. Next, we work with you to provide the ranking IRS agent with the documentation and materials they need to verify aspects of your business tax return. We may provide additional supporting communications, such as drafting IRS response letters, to ensure your rights are protected and that you receive the most favorable outcome.

While we do not represent clients in person during an audit defense, our process typically yields the most favorable results. We recommend that your business stays audit-ready by using our suite of financial services, including quarterly estimated taxes and small business tax preparation and filing.

This way, you'll have peace of mind knowing your materials are error-free and ready for IRS scrutiny.