Nothing strikes fear in the hearts of small business owners and people who work from home like the words “tax audit”.
The Internal Revenue Service (IRS) has more power than almost any other federal department. They can freeze your bank accounts and place a lien on your home. It took the IRS to bring down notorious mobster Al Capone and America’s sweetheart, Martha Stewart. The “good” news is that the IRS only audits around 1 in every 220 taxpayers.
If you’ve received a notice of a tax audit, your first step should be to take a deep breath. The IRS isn’t out to get you. They simply want to make sure that you’re paying all the taxes you owe and that the deductions you’ve taken are legitimate. After you’re feeling a little better, here are some things you need to know to prepare for an audit.
Red Flags for Small Businesses
You may be wondering “why me”? In reality, the IRS only audits a small percentage of small business owners. They look for specific red flags — items that catch their attention — on small business tax returns. If your company has too many of these red flags, you may be faced with an audit. Here are some of the most common red flags for small business owners that the IRS looks for on tax returns:
3 Possible Outcomes From an IRS Audit
After the auditor goes through all of your paperwork and gets answers to their questions, they’ll come to a decision. From there, there are three possible outcomes of your audit:
1. The Auditor Determines That Your Tax Returns Are Accurate
After sorting through your records, the auditor determines that your tax returns are accurate. This is the best possible result.
2. The Auditor Finds a Mistake, and You Agree
In some cases, the auditor might find an error or multiple mistakes. If you recognize the errors, then you’ll be responsible for paying the additional taxes along with interest and possible penalties. You might even find errors in your favor, and the IRS will refund the taxes.
At Silver Tax Group, we know how daunting an audit can seem, and we’re always ready to stand beside our clients. Contact us as soon as you receive an audit notice and we’ll help you with the entire process from A-Z.