While small businesses may not attract quite as much attention from the Internal Revenue Service (IRS) as larger corporations, they are still at risk for an audit. This risk, paired with loose or faulty record-keeping practices can lead to serious IRS problems for small businesses. In contrast, those that keep good records, and for the length of time required, are less likely to experience problems. Know and understand your obligations as a small-time business owner and protect yourself from IRS debt.
Prevalence of Audits and Their Results
Of the tax returns filed in 2014, the IRS audited less than one percent of all filers. In total, this amounts to almost 1.4 million businesses and individuals. Those audits resulted in a total of $25 billion in additional taxes recommended by IRS agents and an additional $7 billion in refunds. As such, it is safe to assume that, under most circumstances, an audit results in owing additional taxes. There are, of course, a few exceptions.
Protecting Yourself before an Audit
The best course of action is always prevention. As such, you should know how to protect yourself before an audit, not just after. This is best done by ensuring you keep your records – income statements, check images, receipts for expenses, statements from your bank, and invoices – neat and organized so that the IRS can quickly and easily sort through them. Failure to do so can result in a number of consequences, namely suspicion regarding whether or not you accurately reported your income or expenses on your tax returns.
How long you need to keep these records will depend greatly on its type or your particular circumstances. However, most will only need to keep their records for three years after the date the original return was filed, or two years after any taxes were paid, whichever time is later. Exceptions may include (but are not limited to) those who file a claim for a loss on worthless securities or deductions, failure to report income that should have been reported (at least 25 percent of the gross income shown on your return), those who did not file a return, and those who have filed a fraudulent return.
Protecting Yourself during an Audit
If you are audited and you have managed to keep good records for the length of time required, you are well ahead of many small business owners. However, it is important that you never let this lull you into thinking that you can handle the audit on your own. Their presence puts your business at risk, and you should always ensure you have skilled and experienced legal representation when dealing with the IRS.
With more than 20 years of experience in helping small businesses handle their tax problems, the Law Offices of Eric Zelazny know the law and the numbers needed to ensure you have the protection needed during an IRS audit. Skilled in negotiations, we can also help you work through any negative consequences you may experience after an audit. Get the representation and protection you deserve. Schedule your free initial consultation with a knowledgeable Cook County small business IRS attorney by calling 708-888-2299 today.