Wednesday, December 14, 2011

Online Taxes: Preparing For An Audit

There are few phrases that are scarier to a business owner than this one: “You have been audited.” It's an inevitability in most cases and only a matter of time if you're the owner of a business and you get moderately successful. How is it then that such a common occurrence is still so terrifying? Maybe it's the invasion of privacy people feel as they muddle through your records. It could also be the fact that it is like the days at school when you got a pop quiz and you hadn't studied at all. Regardless, being caught unprepared can be potentially threatening to your business. This article will get you better prepared when the audit spotlight is on you, in the event it does happen, if it hasn't already!

The first place you should begin is to check your tax return that got you the audit. Familiarize yourself with all your income sources and the deductions that you have claimed. More often than not the Internal Revenue service will audit you on a specific deduction or other expenditure that raised a red flag with them in the first place. If you can find the error on your own, informing the IRS as soon as possible could save you a lot of grief.

Some people wonder what the odds are of me being audited. This carries good and bad news, as the IRS has been increasing the number of audits they do, and they are focusing more on high-income individuals, tax shelters and big-budget corporations. Since 2001 the number of taxpayer audits has risen over 37%. Audits of taxpayers who earn more than $100K have more than doubled since then as well.

Beyond the statistical results that show you could be audited, there are other factors as well to consider. Large charitable deductions will often raise a red flag, as will large business expenses that may be vague or not entirely accurate. Concealment of cash receipts will definitely get you audited, as will a mole or informant who may tell the IRS something is up. If you've had tax problems in the past, and complex business and/or investment transactions will also give you the audit flag.

So you've been chosen for the audit, and you're wondering what you will need. As a bare minimum you should begin by chronologically organizing all the records the IRS is in conflict with. Neatness and organization will get you better results and increase your repore with your auditor. You should also provide any bank statements or canceled checks, any receipts, electronic reports, appointment books and calenders, and worksheets with itemized calculations. An extra copy of all documents is also crucial for your own records.

When it comes to actually meeting the auditor, you should be mentally and physically prepared. Making personal notes to yourself can help in the event of your nerves getting the best of you. In the case of your auditor coming to your home or business, keeping your workplace clean and tidy will make it easier on them, thus making it easier on you to make a good first impression.

Keeping all these things in mind will give you the edge in the case of an audit. Using a tax software like Online Tax Pros can help you get your maximum refund in minimum time. Keep all these things in mind in the case of an audit and always use a licensed tax professional to prevent an audit in the first place.

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