When it comes to dealing with the Internal Revenue Service (IRS), the old saying “The Devil is in the details” holds true. Businesses that are flagged for a tax audit will find the details matter.
What details is the IRS looking for during an audit?
Exactly what the agency is looking for will depend on each case. They may be checking for paperwork to support claimed business deductions or may have concerns about reported income.
How can businesses better ensure the process does not cause a problem for their business operations?
Business owners can reduce the stress that comes with an audit by taking the following steps:
- Separate. Keep business accounts and expenses separate from personal finances. Have a separate, business bank account and use it to pay for business expenses and deposits. It is also a good idea to have a separate, business credit card.
- Document. Keep proper documents to support your business tax returns. This can include receipts for business travel, copies of canceled checks for business expenses and a log of miles traveled for those who claim mileage on their returns.
- Organize. Having all the paperwork in the world is not very helpful if you cannot find what you need when you need it. Take the time to get organized. Have a filing system that allows you to promptly find needed documents to answer the agency’s questions.
It is also important to note that those going through an audit can have legal representation. An attorney experienced in federal audits can represent your interests and better ensure the audit goes smoothly. They can also fight for your interests in the event the IRS claims the business has violated tax law.