For a majority of businesses, the end of the calendar translates to the onset of the tax season. And as you prepare invoices, receipts, and other financial documents from the past year, you could be concerned about the chances of having to undergo a tax audit. As overwhelming and stressful as the tax review could seem, you have no reason to panic. While it must be taken with great seriousness, most of these reviews often simple data or minor reporting errors that the IRS think could have occurred. In fact, not all tax reviews end up being adverse for taxpayers.
If you are yet to receive a tax review notice, here is what you can to make the entire process go smoothly and to reduce any negative impact on your business.
1. Review Your Audit Letter Carefully
Don’t wait for too long to open the letter so that you are aware of all the information the IRS requires from you. And if you do not have a designated tax advisor, you could hire a tax attorney or accountant to assist with going over the audit letter and pinpointing the issues flagged by the IRS. The IRS won’t go away so be sure to act promptly so that the auditors aren’t suspicious of your operations.
2. Organize your Records
Before you and the tax auditor can respond to the IRS, take your time to gather and organize all your business records from the past twelve months. This should include all invoices and receipts for expenses and incomes, canceled checks and bank statements, ledgers and accounting books, titles or leases for your business property, and hard copies of your tax-prep data. And if the IRS has asked for some specific documents to review, make sure you have all the records readily available for access.
3. Respond to all the Auditor’s Questions
When it is time for the tax review, the editor will most likely ask many questions about all the information reported on the tax return documents you provided. In such an instance, do not try to volunteer any information that you have not been asked to provide. Just respond to the information requested by the auditor because giving unasked-for or unneeded information could result in more questions and more issues if there are any inconsistencies. The best idea is to be entirely straightforward when responding to the questions and not fabricate any excuses. Additionally, you should not discuss or bring any documents from your previous tax years unless you are asked to do so.
4. Involve Your Tax Professional
Dealing with IRS is known to be a stressful task, and if you are not sure about the responses you should give, the best move is to let your tax professional, like Vitale & Associates, LLC do all the talking. It is advisable that you provide your IRS with a fully-signed power-of-attorney clause that will let the IRS deal directly with the tax professional. This will take you out of the audit loop and puts them in charge.
How Can You Avoid Future Tax Audits?
The truth about tax reviews is that they are usually very random and cannot be prevented entirely. However, some businesses and companies are typically picked because of specific “red flag” expenses (either types or amounts ) which are extraordinary and could force a hand.
Financial records and bank transfers that are beyond your invoices must be tracked, and anything that cannot be explained on the IRS form must be elaborated on paper. Moreover, it is advisable that you always double-check your math before filing your returns.