No one – us included! – likes getting notices from the IRS or other taxing authorities. It can be a nerve-racking moment when that letter comes in the mail, but most of the time, it isn't as scary as you think. Before you attempt to find the nearest bridge to hurl yourself off of, give us a call and let us walk you through the process.
Audit Facts
For Tax Year 2017, the IRS conducted just over 1 million audits. Though that sounds like a huge number, the chances of being audited are approximately 0.5%. Even if you do turn out to be one of the unlucky ones who gets audited, that doesn't mean the IRS is going to come knocking at your door. 75% of those audits were handled with simple correspondences while the other 25% actually faced a full-blown field exam.
Business owners face even longer odds of being audited. Just 0.2% of all S-Corporation and Partnership tax returns were audited for Tax Year 2017.
Preparing for an Audit
Contrary to popular belief, the mass majority of audits aren't complex. The process starts with the IRS or a local taxing authority sending you a notice that they are requesting information. Before you respond, that's when you should be calling upon representation. Howard and Adam are licensed to practice before the IRS and know how to handle the taxing agencies.
If you do end up with a field audit, auditors are only effectively spot-checking your work, asking you to prove how much you reported in charitable donations or how much your business spent on auto expenses. A general rule of thumb? If you keep records of everything you report to the IRS, you're probably going to be just fine. The best defense for an audit is to have the records to back up everything that you've done.
Business Audits
Business owners are always at greater risk for an audit even if the chances of getting an IRS examination aren't as large. Not only could the IRS or your state (if you're in a state that requires a business tax return) poke around at your records, but you're also susceptible to payroll tax audits, unemployment audits, sales tax audits and potentially more as well.
The good news is that most of the secondary audits are very quick processes that are resolved with a letter or two, some data and a few phone calls.
Once again, though you can never protect yourself from getting a business audit, your way to assure that your audit experience won't be as painful is by having records to back up all of your income and expenditures.
Record Keeping
One of the most popular questions we get asked: How long should I keep my tax records? Fortunately, the IRS has created a handy reference for small businesses that applies to personal tax returns as well.
In general, keeping three years of data is sufficient, though there are exceptions. The IRS is generally limited to auditing returns three years from the later of the day the return is filed or the due date of the return. However, the IRS can audit more years if they are searching for fraud or other obvious substantial errors.
The IRS also states that most audits are completed within two years of filing.
Audit Scams
Nowadays, security is obviously a huge issue. With data breaches and security hacks abound, the bad guys are always finding new ways to try to scheme innocent people out of money.
The IRS is only going to contact you via letter. Audits are not initiated via phone or email, and the IRS will never call you without notifying you first.
If at any point you receive a call, email or other notice you are unsure about, contact us for a free, no-obligation consultation. In most cases, the simple answer is to identify the request as bogus and ignore it, but we will be happy to take a look for you at no cost.
Pricing
Audits are an unexpected nuisance for taxpayers, and though they could end up being small problems, they can unfortunately come with a substantial amount of accounting work. We always work with our clients to keep our fees as low as possible when the taxing authorities come calling.