A tax audit is an examination of your tax return by the IRS to verify that your income and deductions are accurate. In some cases, an audit will result in you owing additional tax money. In other cases involving fraud and unlawful conduct, audits can lead to civil penalties or criminal charges. While there is no sure-fire way to avoid an audit altogether, there are several measures you can take to reduce the chances of exposing your company to one.
1. Get Specific About Your Expenses
When listing your business expenses, you can either:
- Place a particular expense in a specific category, or
- List it as “Other Expenses.”
The favorable option is “A.” The IRS may start to think you are inventing nonexistent expenses if you often chose option “B.” It’s a good idea to also break your expenses down. For example, rather than putting expenses in a “Travel Expense/Travel Meal” category. Break it down into two separate categories.
2. File on Time
Some people tend to think that they’ll have a better chance of avoiding an audit if they file their taxes near the deadline, or even via an extension. The reasoning here is that if you file early, the IRS will have more time to review your return. But the opposite is actually closer to the truth.
You’ll help avoid an audit if you file your taxes sooner rather than later. The same holds true for paying your taxes. Early filing and payment create a history of compliance and following the rules.
3. Don’t Use the Same Numbers Year After Year
This is especially true with deductions. Expenses frequently change from year to year. This is part of the natural course of conducting business. Therefore, try to avoid using the same yearly figures when reporting your deductions. Similar numbers are a red flag that may indicate phony calculations.
4. Try Not to Report Excessive Deductions
The IRS takes notice of this act, and it sometimes tells them a company is trying to inflate deductions to reduce its tax liability. Watch out for excessive deductions on your return. If you have some, ensure your expenses are listed with a great level of specificity.
5. Contact a Tax Attorney for Help
If you have questions about your tax return, reach out to an accountant or tax attorney for help. Or maybe even find a firm like The McWilliams Law Group, which has a tax attorney with an accountancy background. A skilled tax attorney can offer quality suggestions to maximize the chance that the IRS will not be contacting you to schedule an audit. A tax lawyer can also take a look at your return to see if it contains any unnecessary risks or pitfalls.
Contact The McWilliams Law Group for Help
We help individuals and businesses navigate complex IRS rules and develop appropriate strategies to reduce tax burdens. The McWilliams Law Group handles all tax law matters, including tax preparation, filing returns, IRS audits, and litigation. Our skilled tax attorneys represent clients in the Irvine area and throughout California and Washington State. Do yourself a favor and contact our gifted team of tax lawyers today.
