For most people, avoiding an audit is the primary concern of their small business accounting work during tax season.
For small business owners, few things are as stressful as tax planning nor as terrifying as the prospect of an audit. For most people, avoiding an audit is the primary concern of their small business accounting work during tax season. The truth is that an audit is not as terrifying or stressful as people make it out to be – especially if you’ve kept good records. Even though it is nothing to feel terrified of, audits do require time and energy that you’d be better off spending on your business. Read on to learn more about what an audit is and for some tips to help avoid one.
What Are The Types Of Audits
An audit is when the IRS reviews all of your financial accounts to ensure that you’re not under-reporting your income or taking more deductions than you are due. Audits are conducted in three ways – through email or snail mail correspondence, in a physical office, or line-by-line (when the IRS goes through your return). In any case, if you are honest and provide the information they ask for, you should be fine.
What Happens During An Audit
During an audit, the IRS reviews all of your tax forms, financial documents, and bookkeeping. They want to make sure that everything lines up as it should. You may have to prove that you are eligible for the deductions that you took as well. Once they finish their review, they will either find that you don’t owe them anything or that you do own them additional taxes. If you owe, you can either pay them or hire a CPA or tax attorney to represent you and dispute the decision.
Why Do Businesses Get Audited
There are several reasons you might get flagged for an audit. First, the computer system flags returns that fall outside of the norms. The system also occasionally randomly selects returns for auditing. Finally, if your return is related to someone else who is being audited, the system might flag you for an audit as well. As a small business, there are also some tax mistakes that you might be doing that could signal that an audit is needed. If you have employees who you pay as independent contractors, if you don’t report income that is reported by another entity, or if you take suspiciously large deductions, for instance. Doing these things make an audit more likely, so not doing them – and taking the time to do your bookkeeping and keep great records – can help protect you from having one.
Contact Bowman & Company for Your Small Business Accounting Today
Bowman & Company CPA, PC provides all of our individual and small business customers with experienced, accurate, and affordable financial services. Our financial services aim at decreasing your taxes and increasing your net worth through responsible, timely, and accurate recordkeeping. We offer our services to clients throughout the Washington, D.C. metropolitan area including Maryland and Baltimore County, Columbia, and Howard County. For more information on our offerings, contact us online or call us at (410) 381-8121. You can also find us on Twitter, Linkedin, Facebook, and Youtube.