Almost everyone has some form of tax anxiety, whether it is for your personal or business taxes. This anxiety can stem from the fear of audits, the unknown of what may happen, or the amount paid in or owed in taxes. These are all very real and justifiable emotions as many of us know of someone or heard a story of someone who has been audited. We live in a society that teaches the concept of “Innocent until proven guilty”, but with the IRS, it is the opposite. You are guilty until YOU can prove yourself innocent. That’s right, you are not innocent until you can show them you didn’t do it. It will be your job to either present your best case to support your tax details OR find the right team to do this for you. Outlined below are some ways to lessen the chance of an audit and be ready in case you ever get one:

• Why do people get audited? This question is hard to really pinpoint but a better question is “Why do people Lose an audit?” There are a few common threads you see when people lose an audit. 
  • Bad Record Keeping– Your record keeping is the basis to running a successful business from an accounting side. Record keeping can be as simple as a notebook or as grandiose as a computer program. Make sure to sit down and take the time to organize your information instead of using a shoebox method at the end of the year. Garbage in = Garbage out 
  • Bad Advice– Your friend’s tax return and your tax return aren’t the same. What works for one person may not work for the other and this is because taxes are a fluid and changing process. Taxes are based on all the moving financial parts of money in and out, business structure, deduction qualifications, etc. When getting tax advice, please make sure someone is accredited or make sure to go directly to the source, the IRS. The IRS has recently started providing some tax training for business owners.
  • Guessing on a Tax Return– When it comes to your taxes, it is best to know as opposed to guess. When in doubt, figure it out or hire and expert do it for you. The IRS knows where they want items reported if they wanted them reported at all. It is up to you to provide them with the correct information. A lot of audits are started by careless errors. 
  • Falling behind and being negligent– This is fairly common and the IRS views this as an easy target. If you fall behind and rush in returns, its most likely you got overwhelmed and missed key points. Make sure to take your time and document. If you are behind, don’t take an expense unless you can prove you had it. 
• How does the IRS audit you?
  • The IRS audits will always begin with letters. They will not call or come to your house as a first line of action. If you get a call that claims they are the IRS, this is a common scam and should be avoided at all cost. If you have received a call and you are unsure if it is real or not, ask for a reference ID and tell them you will call them back. Look up the IRS number and call back directly with your reference ID to continue the conversation. This should either prove or disprove the validity of the call. 
• What to do if you get audited? 
  • Gather your Alibi– Once again, the IRS treats you as guilty until you prove yourself innocent. You have to form an alibi. This is done through your records and the paper trail that business owners keep. If you don’t keep mileage logs and other documents, you will most likely not be able to prove those expenses in case of an audit. 
  • Correspond through Representation– If you hire someone to handle the audit, let them be the ones that communicate with the IRS. The IRS speaks a different language than the everyday person, so it’s best to have a translator on your side. 
  • Be Patient– The IRS is not quick. They take months to clear issues. When responses are sent in, please make sure to practice patience as they process your response. 

Even with your best efforts, audits may not be avoidable as there is a level or “random” to the selection process of the IRS. With that said, by taking the right steps early on and doing your part to run an organized business, you can greatly lower your chances of an audit. If you find yourself in a situation that requires some expert assistance or you simply want to get your taxes done right to avoid these situations all together, contact us at Advanced Tax Group and we can ensure you are taken care of.