Robert J. Fedor, Esq., L.L.C.

How small business owners can avoid an IRS audit

Any attention garnered from the Internal Revenue Service is typically unwanted. This is especially true when a small business owner relieves notice that they are being targeted for an IRS audit. We've previously discussed how best to proceed when facing an IRS audit and dealing with an IRS auditor. This blog post provides advice for small business owners on how to avoid being audited in the first place.

While the process by which the IRS selects who to audit is supposedly random, each year, a disproportionate percentage of small business owners seem to be targeted. Small business owners are required to submit a tax form known as a Schedule C which details business-related deductions. It's speculated that the submission of this tax form may invite more scrutiny by the IRS.

In an attempt to fly under the IRS's radar, it's wise to employ the following when filing a Schedule C tax form.

  • Ensure deductions are accurate. Many small business owners make the mistake of entering in rounded numbers. Business-related deductions that are all whole numbers essentially signal to the IRS that accurate records were not kept.
  • Double and triple check tax forms for possible errors prior to filing. If there are discrepancies in earned income totals, the IRS is likely to catch the error. What's more, these types of errors often invite additional and unwelcome attention by the IRS.
  • File electronically to avoid clerical or data entry errors.

Small business owners are often required to file numerous forms and must account for all profits and losses. Given the complexity of the tax filing process, it makes sense for small business owners to enlist the assistance of a tax professional. Not only can a tax professional help ensure all forms are accurate and filed correctly, but having a tax' professional's signature on a tax return may help ward off an IRS audit.

Source: Fox Small Business, "Ways to Avoid an Audit," Bonnie Lee, Aug. 30, 2013

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