Three Tips to Keep in Mind When Preparing for IRS Audits

It is common for the IRS or Internal Revenue Service to conduct audits. Although an IRS audit, unfortunately, has a negative connotation, it is not always an indicator of wrongdoings. 

The IRS chooses audits after going through random statistical methods that evaluate a tax return and then compare it with other returns. You can breathe a bit easier knowing that only 1% of businesses are audited every year.

While the chances of IRS audits are slim, they still do happen. The following write-up specifies ways to prepare for an audit. Please check them out right now.

Contact a Tax Professional

After receiving the audit notification, the first step to undertake is to consult or appoint tax experts (whom include licensed IRS tax debt attorney). You may also depend on a public accountant or a registered agent. Even if you wish to deal with matters on your own, it is highly recommended to seek third-party assistance.

A simple mail from the Internal Revenue Service asking for specific documentation can signify potential problems ahead. It could be beneficial to analyze the request and IRS correspondences with somebody who can craft relevant responses.

Have a bookkeeper and tax prepare present during the entire procedure. They can answer all kinds of questions and speed up the audit.

Organize the Records

Poor records pave the way for penalties. Proper organization is critical to an IRS audit. You must have documents for income, expenses, deductions, and losses claimed on the tax return. Organize the records by type and by year and make them accessible. You must also accumulate credit card and bank records and data from the vendors. If any record is not available, please do not make it up.

Report the efforts you exerted to reconstruct destroyed or lost records. For instance, if your office experienced a flood or fire that damaged all of your business records, you must report your attempts to reconstruct the files.

Closely monitor your records to make sure you have not put personal expenses in the business records. It is necessary to keep the business and personal expenses separate. The best way to do so is by using different credit cards and bank accounts.

Find the Correct ATG or Audit Technique Guide

The IRS uses ATGs to prepare for business audits in all types of industries. The guides offer insight into diverse issues or industries, how incomes are received, accounting methods generally used, and regions where the taxpayers may not adhere.

ATGs target specific businesses or industries. For instance, ATGs exist for aerospace, construction, child care, art galleries, and veterinary medicine. Other guides address problems during an audit, like capitalization of tangible properties, executive compensation, activity losses, etc.

Your business can access the same data and use it to gain insight into what the Internal Revenue Service is looking for in compliance with the laws. ATGs are designed for helping IRS examiners, but you may use them to ensure you are not indulging in practices that seem suspicious.

According to professinonal tax experts (whom include tax accountant lawyer, and auditors), IRS audits can be demanding, complex, and time-consuming. The standard business audits take almost a year. Being well prepared helps a lot. Keep the tips mentioned above in mind to handle the process without hassle.