Preparation is Key for Success

Author: Keith Huggett

Nobody looks forward to an IRS audit. It's an intimidating experience that can be disruptive to your business, especially if you have a small operation. However, you can make it go more smoothly by preparing in advance.

Follow these tips to help you survive your next IRS audit:

• Study up: Review all of the tax returns in question and make sure you understand them. You'll need to know how you arrived at all the numbers; if you worked with a tax preparer, have them explain exactly what they did.

• Gather files: An IRS audit is the reason you save all those receipts. If they are not already organized, take the time to do this before the audit. Your audit letter will include a list of records you need to present; these may include bank statements, canceled checks, receipts, credit card statements and accounting files.

• Substantiate claims: Be prepared to justify business expenses; you may need to explain why you took certain deductions. Auditors pay particular attention to deductions taken for equipment that is used for both business and personal reasons, including cars and computers. If you don't keep a usage log for these items, you may have to make reasonable estimates and support them with other records. Travel and entertainment claims are also subject to higher scrutiny, so be prepared with receipts.

• Property records: If you claim business deductions for property you will need to bring your lease or purchase contract.

The more prepared you are, the better the audit is likely to go. Auditors appreciate organization; it not only makes their job easier, but it also makes you appear more credible and trustworthy. View the auditor as a potential ally, not as an adversary. If you have maintained good records and have not made any egregious business deductions, your IRS audit does not have to be a negative experience.

Engaging professional tax representation is one way to ease the burden. If you're facing an IRS audit, call the experts at The Tax Office, Inc. to help you. Contact us today to discuss your IRS letter or tax notice.