Navigating complex tax laws is fundamental to any small business, but each remains open to an IRS audit at any time. Understanding the process and being prepared can alleviate stress and ensure a smoother experience. Here are five frequently asked questions about IRS audits to give small business owners like you the knowledge you need.
Why Might the IRS Audit a Small Business?
A myriad of factors can trigger IRS audits. Some common reasons include discrepancies in reported income, tax deductions, mismatches in business and personal filings, and red flags raised by automated screening systems. However, selection for an audit doesn’t necessarily imply wrongdoing; it may be through random selection to ensure compliance.
What Should Small Businesses Do When Receiving an IRS Audit Letter?
Upon receiving a certified audit letter, it’s crucial not to panic. Review the notice to understand the specific issues the IRS audit seeks to uncover. Following timelines closely is essential, like responding within 30 days or communicating with the agency to request an extension.
How Far Back Will the IRS Audit Go?
In most instances, the IRS has a three-year statute of limitations for auditing tax returns. However, it may be extended to six years when substantial errors are detected.
Can a Small Business Be Represented in the Audit?
A small business owner can designate a representative to attend an in-person audit. This representative should be well-versed in tax matters and adequately prepared to address the IRS’s concerns.
How Can Small Businesses Prevent Future Audits?
While IRS audits are sometimes unavoidable, small businesses can take proactive steps to minimize the likelihood of them occurring. For instance, small business owners should maintain accurate and detailed records, concise accounting practices, file returns on time, and seek professional guidance to ensure compliance.
Preparation is vital, and understanding how the IRS audit process works empowers small businesses to recognize any issues that may arise. Contact the Highland Tax Group today for any of your IRS audit questions or needs and to have your tax filings appropriately addressed.