1. Keep your financial records organized, accurate and detailed, or the IRS will make you wish you had!
2. Don't play hide and seek with the IRS, keep track of all the tax laws that apply to your business, or you might end up losing the game!
3. Don't claim deductions or credits that you're not entitled to, unless you're looking for a special invitation to an IRS audit party!
4. Add on IRS audit support so you have a fair fight with the IRS.  Click this link to add this onto your subscription with us!

Maintain Good Records

Records are extremely important in the case of an audit.  We recommend that you keep electronic copies of invoices, bank statements and credit card statements. 

You should keep records for at least 3 years from the date you file your tax return. However, it's best practice to keep them for 7 years. This is the general rule, but it can vary depending on the circumstances. If you don't report more than 25% of your income, the time frame increases to 6 years. 

If you file a fraudulent return or don't file at all, the statute of limitations doesn't apply and the IRS can audit you at any time. It's also important to keep in mind that the IRS may request records that go back further than the statute of limitations.

Formalize Your Accounting System

An accounting system is essential for IRS audit purposes because it provides the documentation and evidence needed to support a business's tax returns and deductions. Accurate and detailed accounting records help to ensure compliance with tax laws and regulations and can minimize the chances of an audit or penalties. Best practice is to set up a formal accounting system using QuickBooks or other software.

During an audit, the IRS Revenue Officer will review a business's financial records and documentation to verify the accuracy of the tax returns and deductions claimed. This includes financial statements, receipts, invoices, and other documentation. If a business does not have accurate and complete records, it will be difficult for them to prove the legitimacy of their deductions and credits, and they may be subject to additional taxes, penalties, and interest.

Understand the Possibility for Audit

IRS audit rates are HIGHER if your business is reported on your personal tax return (on Schedule C) versus reporting it as a standalone entity with its own tax return. Reporting your business on your personal tax return may increase your audit risk AND open up your personal bank account to scrutiny. This includes Venmo!

Also, be aware of scams such as vendors telling you “all businesses can apply for ERC.” The IRS conducts targeted audits on these special programs to ensure people are not taking advantage of them.

Hire Professionals

The IRS audit manual is highly technical and has a lot of “gotchas”. The Internal Revenue Manual (IRM) is the official guide for IRS employees when conducting audits of businesses. The IRM contains detailed instructions on the audit process, including:

• Statutes of Limitations which outline the time frame within which the IRS must initiate an audit and the time frame within which a business must file a claim for a refund or credit.
• Audit Techniques which provide guidance to IRS auditors on specific industries and types of businesses, common issues, and potential areas of noncompliance.
• Documentary Evidence which covers the types of records and documentation that the IRS may request from a business such as financial statements, receipts, and invoices.
• Resolution of Audits which covers the process of resolving any issues or discrepancies identified during the audit, including assessment of additional taxes, penalties, and interest, as well as the process for appealing an audit determination.

Don't Panic

With proper tax planning and documentation, there is nothing to fear.  This is a routine check up.

Finally, if you are looking for peace of mind, we recently rolled out IRS Audit Protection which includes up to 8 hours of IRS assistance per year, in the case of an audit.  This protection is available for $60 per month. Click this link if you’d like to add this onto your subscription with our team!