How You Can Avoid a Tax Audit
As we discussed in our last post – taxes can be terrifying and overwhelming. What’s scarier than doing your taxes? Being audited. We have devised a list of 5 key things you can do to help avoid getting audited.
#1 – Know your risk. Are you a cash business? Perhaps an accounting firm? You are at a higher risk than other industries. Why? Well if you deal in mostly cash, they know that it’s easier to fudge the numbers. If you are an accountant they will assume that you do your own taxes and keep your own books. These are both red flags that will not guarantee but will greatly increase your risk. Another threat is if you had a GREAT year – maybe it was a change in marketing strategy or just an economic boom in your area. Whatever the reason, for the IRS it is seen as a red flag. Keep your books clean and your records accurate and up to date.
#2 – File strategically. Many tax advisors make a few key suggestions around filing behaviors. The first is extend, extend, extend if you think your business may be at risk for an audit. Generally, the companies selected for audits have been selected by the October 15th extension deadline. If you do not think that you are at risk, then file close to the April 15th deadline. As we all know – it doesn’t matter when you file you still have the same deadline for paying your taxes. The other piece of advice is to refrain from filing amendments. Get it right the first time whenever possible. If you are rushing – extend don’t amend.
#3 – Check your work. This is a phrase you probably haven’t heard since high school math but it resonates. Even if you can crunch numbers in your brain faster than you can brew a cup of coffee, check your math two and three times on your taxes. Make sure that your numbers in your forms match your documents.
#4 – Leave no line unwritten. Blanks are just as suspicious to the IRS as the numbers. Give them zero room to question anything. Even if you simply place a dash or a zero, fill in every line. This will show that not only do you have nothing to report but that you were detail oriented.
#5 – Explain your work. We are going back to high school again with this one but again, it matters. Did your company decide to sign on as a major sponsor for an event, thus doubling or tripling your charitable contributions? Let them know! Provide proof. Perhaps you had a REALLY good year and doubled your income thanks to hiring on a second salesperson. Explain yourself. By providing the information up front, you are reducing suspicion around why these unusual events occurred.
While there are no guarantees that these tips will protect you from an audit, being informed can certainly help lower your chances. So can hiring outside help/experts within this niche – contact us today to find out how we can help partner you with tax filing experts!