Managing the finances of a small business can be overwhelming on the best of days, to say nothing of how complicated things can become if you realize that YOUR small business is about to receive an audit request from the IRS. When you receive that notification letter in the mail, the best thing you can do is to just take a deep breath and relax. An audit doesn't mean that you've done anything wrong - just that the IRS (likely randomly) has decided that they will examine your tax return a little more closely to verify that everything is on the level.
If you want to make sure that you survive your next audit from the IRS as a small business owner, there are a few key things you'll want to keep in mind.
Don't take it personally
Perhaps the number one rule to surviving an audit as a small business owner is also an incredibly simple one. Never, under any circumstances, turn this into an "us vs. them" situation. The IRS isn't out to get you - in fact, the IRS is actually a lot more friendly and straightforward than a lot of people think. So long as they don't think that you're intentionally trying to deceive them or that you're hiding income in some way, even the process of correcting mistakes will be a lot more straightforward than you might think.
They also audit a lot more businesses than you probably think they do, so the odds of you being "targeted" are pretty much non-existent. According to Forbes, out of the approximately 2 million business returns that are filed every year, 33,000 of them get audited - or 1.6%.
Don't make things more complicated than they have to be
Generally speaking, the IRS will be very forthcoming with what they expect of you during an audit. Because of this, your job becomes clear: give them whatever they want to consider your account satisfied.
In a mail audit, for example, you may receive an IRS letter asking for proof of a particular charitable donation. All you have to do in that situation is photocopy the proof, send it on its way and your audit will likely be over. Even in the event of an office or field audit, you'll still be given very clear directions regarding which items are being questioned, what proof is required and how to provide that proof in the first place. So long as you're not trying to intentionally deceive anyone, you should have no problem either providing the exact proof requested or an alternative like a bank statement or other receipt.
If you don't make an audit more complicated than it has to be and if you don't think of yourself as a victim, you'll literally be shocked by just how easy this process can be.
Make the next audit as easy as possible
As a small business owner, you'll have to get comfortable with the idea that an audit is always a possibility. Because of this, you can take steps now to help make sure the next one goes as smoothly as possible.
Always maintain at least three full years worth of financial records, income statements, tax records and more - and always keep your checkbook stubs for the same period of time. If you're called on to give this information, having it on-hand will help a lot. Also keep a record of all of your deductible items AS YOU BUY THEM throughout the year to avoid the types of mistakes that are made when you let everything pile up later on.
Whether you want to get professional help with your IRS tax audit or if you need assistance with any other financial topic, you've come to the right place. A qualified accounting professional can make sure that your small business is on the most sound ground possible (financially speaking) to avoid these and other types of headaches moving forward.
About Martinez & Shanken, PLLC
Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services. Partners Deborah Martinez and Earl Shanken work to ensure your business accounting is done with integrity and to your satisfaction.
