No small business wants the IRS to come knocking on its door to conduct an audit. But many companies increase their chances of getting flagged by not doing all of these things.
Here are four ways to decrease your company’s chances of getting audited:
1. Always provide complete info. This includes making sure all questions are answered, all necessary forms and schedules are attached, as well as adding additional info to explain entries that aren’t as clear (i.e., income received in January being reported on the previous year’s 1099).
2. Steer clear of deductions that are likely to set off red flags. This one’s tricky because the IRS has no official audit red flags. A good rule to follow: Take all of the deductions your business is owed, but always be ready to prove you’re entitled to it.
3. Sweat the details. A simple mistake (math error, incorrect tax ID number, etc.) can easily set off an audit. And while electronic tax-filing programs have greatly reduced the number of math errors in recent years, the programs still depend on businesses to submit the correct info.
Example: If a firm reports $5,000 of income that should’ve been reported as $50,000, the mistake probably won’t be picked up as a math error by a tax program.
4. Don’t forget about state returns. The feds have information-sharing agreements with the states. So, if your company is audited at the state level and still owes additional taxes, states share this info with the IRS. Bottom line: A state audit could result in the IRS contacting you for additional payments, auditing your return, etc.
For a more-detailed list of tips on avoiding an audit –by attorney Barbara Weltman — click here.