Preparing for an audit doesn’t have to be daunting. Here’s how to get ready:
Audit Possibility
The IRS is getting a budget boost for enforcement, suggesting increased audits over time. Small businesses might feel the effects. But audits needn’t be scary if you’re prepared.
How to Prepare
- Separate Finances: Keep business and personal finances distinct. Use separate bank accounts and get an EIN for your business.
- Adopt Bookkeeping: Use tools like Xero for organized records—critical for tax reporting.
- Avoid Red Flags: Ensure reasonable business expenses and appropriate compensation to avert IRS suspicion.
- Beware Social Media Tax Tips: Some advice lacks context; seek professional guidance to maximize deductions without raising audit flags.
- Timely Tax Payments: Stick to deadlines for tax payments and filing to lower the likelihood of an audit.
Dealing with an Audit
If audited, respond promptly. The IRS communicates through mail or in-person interviews, never via phone. Maintain records for three years post-filing to simplify audits.
Audit Outcomes
The result could mean no changes, agreed adjustments, or disagreements, each with specific protocols outlined by the IRS.
Preventive Measures
Following these steps safeguards your business and lessens audit risks. Clean financial statements and informed tax planning add layers of protection, ensuring better financial management for your business journey.