You know your Schedule C audit will cost money and time, but how much will you pay? It will depend on the type of audit you face, the status of your records, and the professional help you hire. Use this breakdown to estimate your audit expenses. For audit representation, a Schedule C is considered a moderate audit: It has more complexities than an individual’s personal return. But then it’s going to depend on the specifics of services you’re looking for, the scope of the audit, the number of business entities involved, the number of years being reviewed, and more.
Consult A Professional
Because you need professional assistance during your audit, you may consult with your tax preparer, CPA or tax attorney. Some preparers include audits in an annual tax prep fee, while others will charge you a flat fee for audit representation.
Assemble Documents
The IRS auditor will need proof of the income, expenses and deductions reported on your Schedule C. If you don’t have organized files, plan to spend several weeks of your time gathering lost or missing records. The more you do, the cheaper it will be: The National Association of Accountants found that accountants charge an average of $116.74 to organize incomplete files.
For more involved examination and analysis of business records, a forensic accountant charges at an average hourly rate of $300.
The Audit
Increasingly, audits are done on paper: Explanations and documents are submitted in writing. For an in-person audit, these meetings last two to four hours. A survey by the National Society of Accountants found that its members charged, on average, $150.00 per hour for an in-person representation at the IRS, and $128 for preparing an IRS audit response letter.
Your Costs
When you’re deciding how much to spend, it’s easy to forget that the audit is already costing you money, because it’s taking you away from time you’d be spending at work, with other responsibilities and life. So what is your hourly salary? How much money would it cost you, to organize the receipts, review documents and more, versus a professional? What about the time for an assistant to answer phones while you are at the IRS? What about a babysitter to take care of the kids for an evening meeting with an accountant, or the time and expense of copying and mailing expenses of documents, etc. In some instances, you may realize that paying a professional to do a task can actually save you money.
Additionally—hopefully it won’t be necessary—but it’s worth noting that if you chose to an appeal an audit, that will require more of your time and additional representative fees.
While it may seem expensive to hire a representative, it can save you thousands, in how much in past due taxes and penalties—that you don’t know how to defend against. If you have a Schedule C business, contact us at 720-398-6088 to address all of your tax needs—from preparing a return to processing your audit as efficiently and affordably as possible.