“The reality is, an IRS audit is just another part of the business owning experience. Most importantly, if you’ve been operating your business in accordance with the laws, you should be fine,” offers Ebong Eka, CPA, author of START ME UP: The No-Business-Plan Business Plan .
IRS Audit Triggers
1. Large amounts of income not subject to tax withholding could cause a red flag and an IRS audit.
2. Unusually large amounts of deductions claimed than seem reasonable when compared to your income could trigger an IRS audit.
3. A large number of dependent exemptions claimed that does not agree with reported social security numbers is a sign that you could face an IRS audit.
4. Large deductions for charitable contributions, casualty losses home office expenses, and travel and entertainment expenses. Make sure you check your deductions to avoid this IRS audit trigger.
5. A change of address when not reporting a sale of your residence and not changing your home related deductions.
6. People who run Cash only business.
7. Deduction business losses (Hobby Loss).
Tips on Dealing With an IRS Audit
1. Don’t panic, the IRS will send you a letter of inquiry that alerts you to what they are looking to review.
2. Consider speaking to an Enrolled Agent, CPA or Attorney as these are the only licensed professionals that authorized to speak on your behalf to the IRS.
3. It’s important to find adequate representation because they will have the experience to know why the IRS had contacted you and what they may be specifically looking for.
4. Gather the necessary documents that support the amounts on your income tax return and ONLY send those documents that were requested.
5. Keep your tax returns and files for up to 7 yrs.
For more information on your small business tax obligations, visit www.irs.gov. Always consult with a tax professional if you feel you need guidance, advice and information on how to prepare your taxes.