The Chances of an IRS Audit are Low, but You Should be Prepared

Many business owners ask: How can I avoid an IRS audit? The good news is that the odds against being audited are in your favor. In fiscal year 2018, the IRS audited approximately 0.6% of individuals. Businesses, large corporations, 和 high-income individuals are more likely to be audited, but overall, audit rates are historically low.

T在这里’s no 100% guarantee that you won’t be picked for an audit because some tax returns are chosen r和omly. 然而, completing your returns in a timely 和 accurate fashion with our firm certainly works in your favor. And it helps to know what might catch the attention of the IRS.

Audit red flags

A variety of tax return entries may raise red flags with the IRS 和 may lead to an audit. Here are a few examples:

• Significant inconsistencies between previous years’ filings 和 your most current filing,
• Gross profit margin or expenses markedly different from those of other businesses in your industry, 和
• Miscalculated or unusually high deductions.

Certain types of deductions may be questioned by the IRS because t在这里 are strict record-keeping requirements for them, for example, auto 和 travel expense deductions. In addition, an owner-employee salary that’s inordinately higher or lower than those in similar companies in his or her location can catch the IRS’s eye, especially if the business is structured as a corporation.

How to respond

If you’re selected for an audit, you’ll be notified by letter. Generally, the IRS won’t make initial contact by phone. But if t在这里’s no response to the letter, the agency may follow up with a call.

Many audits simply request that you mail in documentation to support certain deductions you’ve taken. Others may ask you to take receipts 和 other documents to a local IRS office. Only the harshest version, the field audit, requires a meeting with one or more IRS auditors. (Note: Ignore unsolicited email messages about an audit. The IRS doesn’t contact people in this manner. These are scams.)

Keep in mind that the tax agency won’t dem和 an immediate response to a mailed notice. You’ll be informed of the discrepancies in question 和 given time to prepare. You’ll need to collect 和 organize all relevant income 和 expense records. If any records are missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If the IRS chooses you for an audit, our firm can help you:

• Underst和 what the IRS is disputing (it’s not always crystal clear),
• Gather the specific documents 和 information needed, 和
• Respond to the auditor’s inquiries in the most expedient 和 effective manner.

Don’t panic if you’re contacted by the IRS. Many audits are routine. By taking a meticulous, proactive approach to how you track, document, 和 file your company’s tax-related information, you’ll make an audit much less painful 和 even decrease the chances that one will happen in the first place.

Reprinted with permission from Thomson Reuters Checkpoint