Facing an IRS audit can be a daunting experience for any small business owner.
To navigate this process successfully and minimize potential consequences, it is important to be aware of actions to avoid during an IRS business audit.
1. Neglecting recordkeeping
Maintaining thorough and organized records is important when undergoing an IRS audit. Neglecting this aspect can lead to trouble. Ensure all financial documents, receipts, invoices and relevant business records are up-to-date and readily accessible. Proper recordkeeping not only demonstrates your business’s transparency but also provides evidence to support your tax return claims.
2. Inconsistent reporting
Inconsistencies in your financial statements, such as disparities between income and expenses, can raise red flags and prompt further scrutiny. Make sure that the information you provide to the IRS aligns with the data in your tax returns and is coherent with your financial records.
3. Concealing information
Concealing or omitting information is a grave mistake during an audit. Transparency is a must, and withholding information may look like an attempt to evade taxes. Ensure you disclose all sources of income, deductions and relevant financial transactions accurately.
4. Disregarding deadlines
Meeting deadlines is of utmost importance when dealing with an IRS audit. Failing to submit requested documents or respond to IRS inquiries promptly can result in penalties and additional scrutiny. Make sure to adhere to all deadlines set by the IRS and engage in clear communication to request extensions if needed.
In fiscal year 2022, the IRS completed 708,309 tax return audits. For people facing an audit, honesty, accuracy and cooperation are your best allies.