It's that time of year again...tax time. And while there are no ways to 100 percent guarantee that a business's income tax return won't get audited, there are some steps to take to greatly decrease the chances of a tax audit from happening.
The following tips are some of the most crucial considerations for avoiding a tax audit:
1. Carefully choose a tax preparer. Today, over 60% of Americans, and even more business owners, rely on a paid tax preparer to complete their income tax documentation. However, not all tax preparers are equally qualified and competent, and the government is starting to really crack down on preparers to try and find questionable deductions and other fraudulent information. Before selecting a tax preparer, it's important to look into their background to see if they're been flagged by the IRS before.
2. Provide complete and detailed information on your tax return. If any fields are missing or insufficiently filled out, it may attract additional scrutiny and a tax audit on your entire return.
3. Complete your state tax return as carefully as your federal tax return. If your state taxes are audited, this fact will be passed along to the IRS, which may lead to the IRS to believe that there may be errors in your federal tax return as well, and can lead to a tax audit.
4. Be careful with your claimed deductions. For example, if you wish to claim your home office as a tax deduction, make sure that it meets the home office requirements imposed by the IRS. Failure to do so can result in tax litigation.
And while these tips can greatly reduce the chances of getting an audit, it is still possible that even if all the necessary steps and information is properly filled out, a business owner could still end up receiving an IRS audit letter. In these situations it is best to never speak directly with the IRS without having proper representation, as IRS agents are specially trained to get more information out of a person than he or she legally even has to give.
Source: The Wall Street Journal, "10 Ways to Avoid a Tax Audit," Barbara Weltman, 24 Jan 2011