When it comes to receiving a notice from the IRS, it can be a stressful situation for a small business owner. If this is notice saying that you are getting audited, it can be an anxious situation. However, the best way to deal with any audit notice is to prepare in advance of the audit. Work with your tax professional or accountant, such as BTL & Company, P C, Tax & Accounting in Beaverton, OR, who can assist you with not only the OR, who can assist you with not only the audit, but future filings as well. Here are three steps to prepare for working with the IRS.
Before meeting with the auditor, it is important to review the return in question. You will want to do so even if you are choosing to give your tax professional the power of attorney to deal with the IRS. This will allow you to answer any potential questions that your tax preparer may have regarding the return in question.
You will also need to be sure that you have all the backup to substantiate the questioned return. The records need to be organized in a logical fashion for the auditor or examiner. If you have any deductions or income sources that you cannot backup, do your homework to try to reconstruct your missing records as much as possible.
Remember that neatness will be credibility with your auditor. After all, if they can see your records are in order and labeled correctly, then they are more willing to give you the benefit of the doubt. If you walk in with a box of receipts, then you may receive additional scrutiny.
The IRS will want to see the documentation that backs up your expenses. In addition, the auditor will give you a list of requested items that you will need to bring to your audit. This could include bank statements, canceled checks and receipts for that tax year. If you paid expenses with cash, then you will need to produce the receipts for those expenses. Any paperwork with notes or other information that demonstrates the expenses paid is also helpful.
If you paid your expenses with a credit card, then you need to be sure to bring the corresponding statement with the date of the expense, the amount of the expense and name of the vendor or payee.
Also be sure that you have any other backup documentation, including mileage logs, diaries of appointments, and records for various equipment. Therefore, you want to have clear documentation of any equipment that is used for both business and personal use. If you have not kept these records, then you will want to reconstruct them to the best of your ability. Doing so can assist you in answering any questions that your auditor may have regarding your expenses that were deducted on your return.
Auto records, travel and entertainment expenses, as well as any charitable donations, will all need to be well documented with logs, receipts and written records. Work with your bookkeeper to determine the best method for tracking these expenses before your audit, so if you are audited, you can be prepared to answer any questions with the proper documentation.
When it comes to dealing with the IRS, it is important to not make your auditor guess. Be ready to produce the necessary records to answer their questions. As we have mentioned, it is important to be neat and organized for your audit. This applies not only to your records, but also your own personal appearance. After all, you need to be sure that your auditor can take you seriously.
If your records are incomplete, not only can they estimate your income or expenses and thus penalize you accordingly, or even impose an additional penalty for a failure to keep records.
Additionally, you will need to be sure to act professionally. Remember that the auditor is not your friend, but a professional doing a job. So you need to deal with them accordingly. Also, answer questions completely, but do not volunteer additional information. Allow your tax professional to do their job and deal with the IRS, but be prepared with any documentation that they may require.
As you can see, the audit process can be time consuming, but you can make the process less stressful by being organized and making sure that you have all the necessary support documentation available.
Click on the link below to connect with a tax professional or accountant in the office of BTL & Company, P C, Tax & Accounting in Beaverton, OR, to discuss your audit notice and how to address the IRS.
BTL & Company, P C, Tax & Accounting