How small businesses can handle tax audits
You do not have to run an unethical small business in order to be the subject of an audit by the Internal Revenue Service. And even if you have not done anything wrong, that does not make the process any less stressful. The following tips can help you avoid a tax audit, as well as help to deal with the IRS if your business is being audited.
How to avoid a tax audit
Although you may not be intentionally trying to defraud the government when you file your taxes, there are some common mistakes that small businesses make that may trigger a tax audit. These tips can help you avoid some of the red flags that the IRS looks for.
- Be careful with donations. It may be better to give than to receive, but if the IRS notices that you are giving more than usual – and your income has not proportionately increased – what you may end up receiving is a tax audit. Be careful if you are considering increasing your charitable donations when your income has remained the same.
- Be specific about deductions. One red flag that the IRS looks for is when a business claims miscellaneous deductions. Be sure to specify what your deductions are for and have the documentation to back them up.
- Separate professional from personal. Small business owners must be meticulous in keeping their business and personal expenses separate. The best way to do this is to keep separate bank accounts and credit cards for the business in order to avoid raising eyebrows.
What to do if you are being audited
Even if you are careful when dealing with the finances of your small business, you may still be audited by the IRS. If that happens, the following tips can help you get through it.
- Keep meticulous documentation. Make sure that all of your documents for the tax years the IRS is looking at are in order so that you can justify all of your deductions.
- Think outside the box. If you cannot find the receipts for your deductions, you may need to be creative in proving your expenditures. You can use credit card and bank statements in lieu of receipts, or if you need to prove your business mileage, you can estimate your travel by using tools like Google maps.
- Look for missed deductions. As you are going through your paperwork, you may notice that you did not claim deductions that you were entitled to. If that is the case, you can claim these deductions during the course of your audit, which can go a long way toward reducing your liability.
Get legal help
Tax law changes yearly. Tax attorneys make their living by keeping up with these changes. If your small business is the subject of an audit, or if you have any other tax matters that you need help with, an experienced attorney can help you get through it.