How To Avoid Audits: A Guide For Small Businesses

The Small Business Owner’s Guide to Handling and Avoiding Audits

Running a small business or being self-employed is empowering, exciting… and sometimes confusing and stressful. One of those off-times is tax season. A CNBC Small Business Survey reported that 22% of small business owners didn’t know their effective tax rate in 2016. If you’re the head of your small business or just starting out, knowing how to best file your taxes can be a guessing game. When small businesses make common mistakes, the IRS can take notice. Here is the small business owner’s guide to what they might have done wrong, and how they can get through a stressful audit.

Common Reasons Why Your Business Might Have Been Flagged that Aren’t Unfiled Taxes or Unpaid Taxes

1. Your business mostly deals in cash, such as a car wash, nail salon, or restaurant.
2. You consistently file and pay your taxes late.
3. You reported large amounts of charitable donations.
4. Reported use of a company vehicle, travel expenses, entertainment expenses, or meal expenses seem excessive.
5. Unusually large reimbursed business expenses.
6. Paying large salaries to employees who also happen to be co-owners or shareholders.

You Are Being Audited. What Now?

1. Don’t panic if none of the above reasons for being flagged apply to you. They’re only a few common examples, and you’ll likely figure out what got flagged when the auditors begin asking you focused questions.
2. Keep your finances organized and in order for the audit, and get all the paperwork finished promptly. Make the job fast and painless for yourself and the auditor. If you know what they will be looking for, anticipate their questions and how you can answer them.
3. Now and in the future, practice good habits with keeping receipts, recording expenses, and avoiding IRS flags such as unfiled taxes. Be vigilant about recording everything business-related.
4. If you are nervous about the audit and the possible outcome, request tax help from our Houston audit defenders. Tax defenders can also advise you on what to change about how you run your business to avoid audits in the future.

Collins Legal, PLLC is a dedicated group of licensed and experienced tax defenders serving small businesses in the Houston area. Nervous about the state of your taxes? Let Collins advise you on the best solutions for your work. IRS knocking on your door? Collins is ready to be your representative. Stress no more about your taxes when you have a business to run.