Being Audited? Don’t Panic – Here’s How to Prepare for Your First One
Opening a letter from the IRS is an understandably harrowing experience for a business owner, especially if it’s within your first year of business. But even scarier is the delivery of an audit notice, which means the federal tax agency is going to take a closer look at your books from the previous year.
If you’re facing an audit notice, there are a few things you’ll need to get sorted to ease your stress level and help make the process go more smoothly:
Speak with your Tax Professional
If you had your taxes prepared by a professional accountant, Enrolled Agent, or attorney, you may request that person represent you with the IRS. However, if you don’t feel comfortable with that professional representing your business on your behalf, you may represent yourself or hire a different professional to do so.
Next, you’ll want to work with that representative to determine which Audit Technique Guide (ATG) the auditor will be using to evaluate your circumstances. These are publicly available and can help your team understand where and how the IRS will handle your case – even down to the questions they’ll ask during the audit process.
Once that’s taken care of, you and your tax professional will be able to create a pre-audit strategy to help you focus on key elements of your audit. Is the IRS looking for unreported income? Do they suspect your losses taken aren’t allowable under your filing? Or do they question your deductions? Be honest with your tax representative and walk through each potential scenario. The more you prepare, the easier this will go.
Notify the IRS
Within the initial audit letter there will be a number included to contact an IRS agent by a certain date. Once you’ve made your arrangements, it’s best that your tax professional make the call on your behalf. They will ask initial questions about your tax return and if you’re unprepared, guessing won’t do you any good.
During the first phone call, the auditor will determine the scope of the audit based on the answers you provide to their questions. This call usually leads to a larger, longer-term appointment with the IRS agent in a physical location.
Designate a Point Person
More than likely, the most harmful result of a small business audit is the loss of time and resources due to non-revenue related energy put toward preparing for the audit. Limiting the scope of your involvement while ensuring your business is fully prepared may require a full-time commitment until the process is seen to completion. Rather than having your team pitch in as needed, it’s wise to contain all aspects of the audit process and enable a single person or small team to work on preparation and organization to help the process move along smoothly once the auditor arrives. The more you’ve prepared, the faster they’ll be out of your hair.
If you’re concerned about your company’s tax situation this year or are facing an audit and are unsure where to turn, contact the team at Honest Buck Accounting for expert advice specifically suited for small and medium-sized businesses of any age.