One thing that can certainly spell hard times for any business is an audit from the IRS. Thankfully, with some hard work and due diligence, your business can comply with the law without any problems. Below are some ways you can allow your business to avoid continuous scrutiny from the IRS.
1. Explain when Necessary
If you think something out of the ordinary on your balance sheets might get you flagged for an audit, address it pro-actively. Do this by making sure to include extra worksheets, forms or receipts that can explain the discrepancy to the IRS. Without this additional information, they may have to perform an audit to discover the source of the questionable figures.
2. Be Aware of Routine Audit Flags
Certain kinds of entries on income tax forms produce audits more routinely than others. You should be aware of what these are and take care to make sure these things are properly accounted for with a good amount of documentation. Items that routinely flag businesses for an audit include things like travel expenses, food costs, deductions for home offices, entertainment expenses, casualty losses and too many miscellaneous expenses listed on Schedule A.
3. File Promptly
It may not only be the content of your returns that produce an audit but the time frame you submit them in as well. As a general policy, always submit your returns when they are due. In fact, do so as early as possible. A late filing may create a perception of laziness or deception with the IRS and produce an audit.
4. Make Adjustments to Avoid Future Audits
Unfortunately, despite taking precautions, your business may still end up being audited by the IRS. Take Frank L. Vandersloot, CEO of Melaleuca for example, who was audited twice by the IRS in 2012. While this event may be extremely stressful, you can also use it as a learning experience. If you don’t, you won’t be able to avoid the next audit. Make sure to not repeat the same mistakes. This may require switching accountants, changing your business practices or declaring more believable deductions.
An audit by the IRS can be a terrifying experience for any business owner. What causes an audit to take place is not revealed to the public. However, if you do run a profitable company, you are at risk of being audited simply for being successful. Make sure you take every precaution possible. This will make sure that an audit doesn’t occur in the first place. If one does, you will have a higher chance of surviving unscathed.
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