For most businesses, a tax audit is not an enjoyable experience. The experience, whether it is partial or complete, can cause minor problems if only certain records are examined, or major accountants average salary issues if the entire business is being audited.
When your business is notified that it has been audited, you will be advised which parts or portions of your tax return will need to be reviewed so you can put together the documents. You will also need to make a decision about who you want to represent your business, whether you are going to hire a tax consultant or yourself. If you don’t have a good understanding of tax law in your business, it is worth hiring someone with expertise. If you do decide to represent yourself in the audit and run into a problem, the taxpayer bill of rights allows you to request a suspension of audit until you speak with a certified tax attorney or a tax accountant. While professional representation can be costly, it is guaranteed to save you time, stress, and money.
You must have all relevant documents available to examine the information that supports several critical areas of your business. Begin with income. Your bank statements, deposit records and sales records will all be examined. You must provide documentation of any gifts received, value, inheritance, or exchange of goods or service you received. The IRS could consider these taxable income if the documentation is not provided.
Your business’s accounting for indebtedness will be carefully examined. You can compare expense items like canceled checks, bank statements, credit card statements, receipts and other records with tax returns. Debts and business losses, charitable donations, travel, meal, and entertainment expenses will all be taken into account. It is essential that accurate records are kept to verify that only legitimate business expenses were claimed.
The interest on business loans are a deductable expense. To verify that the money borrowed was actually used for business purposes, financial records will be compared with bank statements.