Tips and Methods for Surviving Your Business Audit

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Tips and Methods for Surviving Your Business Audit

Businesses that have gone through a business audit will tell you that this can be a truly nerve-wracking experience that can test even the most self-composed business owner. With long working hours devoted to sorting everything out and constant pressure to meet important deadlines, you’re left with little time for relaxation and much-needed weekend rest during the audit busy season, and both you and your employees may feel like you’ve reached the verge of burnout.\

Fortunately, the Internal Revenue Service (IRS) audits less than 2 percent of businesses every year and if everything is in order with your documents and your finances, you probably don’t have much to worry about. However, you should be cautious with the audit procedures as the key to surviving a business audit is having the right information in hand.

Regardless of whether you receive an audit notice in the future or not, the following tips and methods will be useful in surviving one.

Prepare the Necessary Documents

Once you receive your audit notice, you shouldn’t rush to contact the IRS immediately. You’ll be given around 30 days to respond which gives you plenty of time to contact a reliable tax attorney and sort out all the necessary documentation. 

Depending on what the IRS is planning to investigate, you may need different documents like receipt and bills, loan agreements, proof of employment, legal papers, and mileage logs. The reason for the audit is clearly stated in the audit notice so prepare all the relevant supporting documents. Don’t show other years’ returns to the auditor unless you’re specifically asked to do so. The auditor could make adjustments to those years’ returns if they find something questionable on them.

We advise you to keep all records up to date throughout the fiscal year which can significantly reduce pressure when the time for an audit comes.

Have an Expert Help

If you’re expecting a visit from the IRS but have never previously been audited, having a professional by your side through the audit can be incredibly helpful. For instance, you can hire a tax and audit expert to be there with you as they have considerable experience working with the IRS and will take into consideration how your company functions each day, and make the ordeal much easier.

They can act as an intermediary, ensuring that you’re able to remain concentrated on the company’s goals and mission. It’s important to note that if you don’t have a good working relationship with your accountant, this should serve as a wake-up call. It’s essential to develop a good relationship with any professional who’s working on your taxes and ensure that they will help you out when the auditors knock on your door.

Learn Your Rights and Be Direct

If you learn your rights, you’ll be able to better defend yourself and negotiate more effectively during a business audit. To find more about your rights, look at the Taxpayers’ Bill of Rights by reading the IRS Publication 1 and do some research on tax law issues by using different IRS publications and tax guides.

Furthermore, a good tip is to refrain from volunteering information during the audit. When the IRS auditors ask you for a certain type of information, remember to present the exact information, and provide no more and no less. The more information you provide, the greater the chances that they’ll think of something that can lead to a more extensive probe. For this reason, be brief and direct when answering questions throughout the audit.

Learn From the Past

If your business has been audited before, you should go through your past audits and also take into consideration the changes in the financial situation from the last audit since material changes can affect the process if new projects are invested, or there is government support or grants allocated.

Make sure to review the challenging aspects of the past audit, see if you have the right information for your auditors and whether you have made any changes in processes. By going through these aspects, you’ll be able to better plan for the upcoming audit and be able to address any pain points accordingly.

Lastly, since accounting standards, legal and regulatory requirements are updated every year, it’s important to keep your finance team informed on the latest accounting developments.

When everyone’s up-to-date, it will reduce precious time spent on tracking data and making changes to comply with regulations.

Conclusion

A business audit can be time-consuming and end up costing you a substantial amount of money. However, by preparing all the paperwork ahead of time, learning your rights, looking to the past for guidance, and staying focused, you’ll ensure a successful business audit and make it a positive experience for everyone involved.

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