The 2014 IRS Data Book reports that 1.9 percent of sole proprietors with income under $100,000 and 2.3 percent of sole proprietors with income over $100,000 had an IRS audit in 2014. If you’re one of those businesses, you know the frustration and stress an audit entails, and you definitely want to avoid the experience again. Consider these tips to help prevent a second IRS audit.
Hire A Professional Tax Preparer
Hire a professional tax preparer who understands current tax laws and codes, who knows the red flags that trigger audits.
Learn From Past Mistakes
If missing income or high deductions triggered your first audit, don’t make those same mistakes again. Comb through future tax returns to ensure they’re factual and error-free.
No matter what kind of year you had, always tell the truth on your tax return. Fudging numbers, hiding income or boosting deductions could all trigger an audit.
Match Your Numbers
Math errors comprise one of the most common tax return mistakes. Always double check your calculations, and confirm that the income and deductions reported to the IRS match what’s listed on your tax return.
Deduct Only Legitimate Business Expenses
According to the IRS, legitimate business expenses are both necessary and ordinary. Weigh all deductions against these guidelines to ensure you file an accurate tax return.
Audit triggers like low income or high deductions may be unavoidable, so document all your income, expenses and Schedule C details. Your documentation reduces any guessing and increases the accuracy of your tax return.
Using Returns for IRS Future Payment
As discussed by Forbes, a large payment due as an IRS refund, may—on its own—trigger a further review. So it may be better to ask that the return be applied to future taxes, rather than asking for a big pile of cash.
These tips can help you reduce a second audit, but they’re not foolproof. Contact us at 720-398-6088 and receive assistance handling your first or second IRS audit.