Facing an IRS audit on your business tax return will involve thoroughly examining your financial records to verify accuracy and compliance with federal laws. Early preparation is the first step toward the agency accepting your response without further requests. But if discrepancies with your business lead to an audit, does that mean the IRS will also audit your personal return?
IRS Audits: Business vs. Personal
While the IRS auditing your business doesn’t necessarily guarantee an audit of your personal return, it’s essential to recognize that there can be a connection between the two. The primary difference between business and individual tax return audits lies in the scope and focus of the examination.
When the IRS audits a business return, the process concentrates on transactions, deductions, credits, and other related financial activities like recordkeeping, accounting practices, and adherence to tax laws. While personal tax return audits focus on similar aspects of tracking income, there is an emphasis on itemized deductions, dependents, and joint versus individual filings for married couples. While these distinctions exist, the IRS may examine both business and personal tax returns if there are interconnected issues.
Business and Personal Tax Return Connections
If your business is a sole proprietorship, a single-member LLC, or a pass-through entity such as an S corporation or partnership, business income and deductions are reported on the owner’s individual tax return. Therefore, it may prompt the IRS to audit your personal return.
Yet, the IRS can audit your individual return following your business for multiple reasons. If the agency finds any filing inconsistencies related to your business, it may prompt them to review your personal return for a more comprehensive assessment. Even a misspelled word on your business return that doesn’t match your personal return can lead to an IRS audit.
If you’re facing a business audit, ensuring the accuracy and compliance of both your business and personal tax returns is critical, and seeking the guidance of an experienced tax professional who understands how IRS audits are conducted can give you peace of mind. Contact the Highland Tax Group today to get started navigating the complexities of the IRS audit process.