Posted on: 16 February 2015Share
IRS audits are arguably among the most scaring events in the business world, since they can lead to hefty fines from the government, along with constant monitoring for the years to come. While it's true that the IRS conducts a certain number of business audits each year, the probability that your company will be selected is meaningless, especially in this year. This article explains how you can avoid triggering an IRS audit.
There will be fewer audits this year
As you might know, the budget allocated to the IRS for this new fiscal year is significantly lower than expected. According to IRS Commissioner John Koskinen, the budget cut will have considerable effects on the federal agency, such as preventing it from operating at full capacity.
What's the average duration of an audit?
A typical IRS audit lasts for three years. If you think that this is a long time, know that businesses that have foreign accounts can be audited for 6 years. But this isn't even the maximum duration of an IRS audit. Indeed, in the case of un-filed tax returns or fraud, the federal agency might decide to keep a company on its radars forever.
Eliminate the inconsistencies in your finances
When IRS professionals review your business tax returns, they look for any number that is inconsistent with your activity. The federal agency generally sets ranges for every accounting item featured on businesses' financial statements. So any item whose number is outside of the set ranges without proper explanation will trigger an audit.
Use evidence to support large deductions
Just like with the value of accounting items, the IRS establishes an error margin for the deductions you can claim for your small business. If after experiencing a very profitable year you make a large deduction, you must provide the documents proving that you're entitled to it.
As you might know, deductions are typically tied to the business expenses made throughout the year. If the total amount of those expenses is large, so will the claimed deductions. When filing your taxes, simply make sure that you're joining all the receipts for the related expenses. This is how you're going to be able to avoid triggering an audit.
If you're currently being audited and think that you need professional guidance during this process, feel free to contact a business tax preparation services company. This will give you the peace of mind, especially if you've never done anything that is against the law.