Straight from a CPA: How to Avoid a Small Business Tax Audit

No business owner wants to deal with an IRS audit. While the chances of being selected for one are slim, they’re not zero. Some audits are random, while others stem from red flags on the taxpayer’s return. Auditors also have three years from the time a tax return was submitted to trigger the process.

Simple calculation mistakes, overestimated deductions, and even a missed signature can already sound the alarm for an audit. Fortunately, there are ways to further reduce the odds of being chosen as a subject. The following are what a CPA considers good tax practices that will keep the IRS off your back.

Be honest

Underreporting your income is the biggest tax sin in the eyes of the IRS, so it’s best to declare everything. Discretion is also required when claiming deductions, as excessive and undocumented ones will most certainly warrant a review. For instance, if you run your business out of your house, you can only claim home office deductions proportional to the percentage of your home that you use for business and nothing more.

Aim for perfection

Sometimes it comes down to the math, so it’s imperative to triple check all calculations before submitting your return. Avoid using round numbers, even if they tend to make computations easier. Any inaccuracies can set off warning bells, so make sure that every zero, comma, and period are in the correct place.

Leverage technology

Doing things manually can cause an extraordinary amount of stress especially since you’ll be doing this on top of your day-to-day business duties, but what’s more concerning is that it also leaves you open to human error. There are a number of tax preparation software options out there that can alleviate the burden of this process and you may find it a worthy investment if it saves you from the hassle of an audit. Take advantage of electronic filing solutions as well, as these have data scanners that will serve as a last check for errors before you hit the submit button.

Plan ahead

The tax system runs on a certain schedule so you can definitely plan activities to ensure timely filing and payment. Part of planning is also keeping abreast with the latest tax laws and regulations that can affect how your taxes are calculated. Missing key changes here can cause your computations to be off, which in turn, can trigger an audit.

Completing your tax obligations—and doing it to the satisfaction of the IRS—is a big endeavor. It’s completely normal, if not advisable, to seek help from a professional CPA firm in Nashville or your local area so you don’t have to worry about getting flagged for an audit anytime soon.