Avoid an Audit With Careful Business Tax Preparation

Posted on February 9, 2016


Red Flags in Business Tax Preparation That Will Bring the IRS to Your Door

business tax preparationEveryone wants to know how to avoid an audit with the IRS. After all, when it comes to business tax preparation, there’s nothing more time-consuming and terrifying than being audited. So, how do you prepare your tax return so as to avoid an audit?


The first rule to avoiding an audit is to keep organized records and report all income and expenses truthfully. Here are some other suggestions for keeping your return off an IRS agent’s desk:


Run your business like a business, not a hobby. If you show losses your first year, it’s one thing. However, if you’re in your third year of business and still haven’t turned a profit, you can expect to hear from the IRS. If you anticipate that your company will experience heavy losses, be sure to have clear and reliable documentation.


Make sure your income is recorded accurately. If what you record as income doesn’t match what your customers say they paid you, it will be a red flag for an audit. Be sure to record exactly what your customers paid you, and record it consistently as far as timing. (Do you record it when the service or product is delivered, or when you receive the cash?)


If you use a tax preparer, make sure they can clearly explain your records to you. It’s you, not your CPA or bookkeeper that will pay penalties and interest if there’s a problem with your records or your return. Be sure that you understand why things on the return were treated a certain way.


Pay your estimated taxes. Pay the proper amount, and pay them on time.


Don’t ignore the IRS. If you get a notice in the mail, don’t just hope that your case will get lost in the paperwork or that they will forget about you. Respond to the request while it’s a notice in the mail and before it’s an agent at your doorstep. Also, don’t assume you are being audited simply because you get a request for information.


Overall, run an honest business. The IRS knows the appropriate types of expenses and the expected level of income when it comes to your type and size of business. Trying to pass off a personal luxury purchase as a reasonable expense will raise concern and will trigger a closer look from the IRS.


Bert Doerhoff, CPA and his staff at AccuBiz can provide guidance for avoiding raising red flags with the IRS in business tax preparation. While there are no guarantees that you won’t catch the attention of the IRS, we can assist you in avoiding those concerns that make you an obvious target. Give us a call and we can have a conversation about how to protect you from an audit.

Posted in: Small Business