Most of the time, small business returns are not audited. However, in recent years, the IRS has gotten more active. In November 2021, the IRS announced that audits would increase by 50% in 2021. In August 2022, the Inflation Reduction Act was passed, which included $80 billion in funding for the IRS, with approximately $45 billion of that going towards enforcement.
Nolan Accounting Center can help your Southeast Wisconsin business with your financials. If you are audited, we will have all the paperwork that you need to get through it.
In this article, we’ll explain what you should avoid if your business is audited and the steps you can take to ensure it goes smoothly.
Common Reasons Your Business May Be Audited
There are certain triggers that can increase your chances of an IRS audit on your small business, including:
- Consistently reporting year-over-year losses
- You never or rarely file on time
- You have an overabundance of deductions
- Your business is cash-based
- You are not reporting your offshore holdings or income
- Cryptocurrency is a major component of your business
- Your business is structured as a sole proprietorship
Things to Avoid If You Are Audited
There are several things to avoid if you receive a letter that your business is being audited:
First, avoid panicking. Most of the time, audits are fairly routine. The auditor is there to ensure you are not making mistakes on your tax returns. They are not there to punish you. In order to ensure that you remain calm, you may want to consider hiring a tax attorney.
Never ignore an audit notice. Make sure that you respond within the 30-day deadline, whether you agree or disagree. If you do not, the IRS may make their own adjustments to your income/expenses and assess additional taxes along with penalties and interest.
Never destroy documentation and avoid giving the auditor more than they are requesting from you. Also, never give them your original copies- provide them with copies of everything they ask for.
Don’t avoid paying what you owe. If you don’t pay, you only make the situation worse, and the IRS may put a lien on your home or property. if you don’t have the money readily available, apply for an installment plan. Typically, if you owe less than $50,000, the IRS will allow you to set up a payment plan without a lien. However, you must prove that you cannot pay what you owe and will be able to clear your balance within 3 years.
Let Nolan Accounting Handle Your Tax Prep to Help Avoid an Audit
An IRS audit on your small business can be frightening. After all, no one wants to deal with the IRS. However, the process is fairly straightforward and easy. Simply stay calm, avoid hiding information- but don’t give out more than they ask for, and hire a tax attorney if you feel like you need extra support.
If your business is located in Southeast Wisconsin, Nolan Accounting Center can handle the financial aspect of your business. We will make sure that you have the paperwork you need to prepare for an audit.