Few activities can be considered less desirable than an audit by the Internal Revenue Service. Even a root canal may rank slightly above it.
Last year, 1.03 percent of tax returns filed were audited. This represents over 1.4 million audits. Over 97 percent of these audits were for individual tax returns, leaving a small percentage for business audits. For small corporations, only 0.85 percent of returns were audited, 0.4 percent of Subchapter S corporations, and 0.38 percent of partnerships were audited. Even though the percentages are relatively small, it still represents nearly 50,000 business audits.
Most audits occur for a reason. They do not occur randomly. Therefore it is possible to minimize your chance of being audited by preparing your tax returns correctly, even if it means paying for high quality tax advice. One tool that can help you with this (and it costs nothing) is the 2011 The Tax Calendar for Small Businesses and Self-Employed. This calendar contains important information and reminders relating to IRS deadlines.
Your Guide to an IRS Audit
“Your Guide to an IRS Audit” is organized into 10 lessons. Each lesson answers a key question that small business owners facing an audit typically have:
- What is an IRS Audit?
- You’ve been contacted – what should you do next?
- Should you get a representative?
- How do you prepare your records for the audit?
- What happens when you have an audit at the IRS?
- What happens when the IRS audit occurs at your location?
- What happens after your first appointment?
- What happens when you agree with the audit findings?
- What happens when you disagree with the audit findings?
- If you owe, what are your payment options?
Each lesson includes learning objectives, reference documents and sample documents. In order to make the lessons appealing, the guide tracks three fictional businesses going through the audit process: Antonio Sanchez’s computer repair business, Jack Anson’s auto repair shop and Calvin Howard’s flower shop. The lessons follow the audit process for each business with different issues and outcomes for each one.
A key theme throughout the courses is the importance of keeping accurate and detailed records. While this sounds obvious, many small businesses still do not comply with this requirement and scramble at tax time to prepare as much of the necessary documentation as possible.
“Your Guide to an IRS Audit” is available here. It is part of the IRS Video portal which consists of presentations, webinars and phone forums targeted towards individuals, small businesses, tax professionals and government agencies. The small business section currently contains 15 video categories with a total of over 75 videos on different topics of interest to small business owners. There is also a two hour virtual small business workshop which is designed to assist new business owners on their tax rights and responsibilities. No registration is required in order to access the videos. The IRS also offers the small business and self-employed tax center at the main IRS website. The tax center offers access to forms, publications, online resources, events, newsletters and information.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.