If you’re an entrepreneur, you may dread the thought of receiving an audit notice from the IRS. However, this doesn’t have to be a negative experience if you are using good business accounting practices. If you run a small or midsize business, here’s what to know about the odds of being audited and how to get ready for an audit.

What Should You Know About an IRS Audit

What an Audit Is

An audit is a review of a business’s income and deductions reported on the company’s federal income tax return. Auditors conduct the review to identify any mistakes and request information to clarify any discrepancies. These can include receipts, financial statements, and other accounting records.

Your Odds of Being Audited

The chances of your business being audited are minor, according to the latest IRS statistics. In 2016, 0.5% of all sole proprietorships, partnerships, S-corporations and limited liability companies were audited. The percentages are even smaller based on the total amount of annual revenue a small or midsize business generates.

What Triggers an Audit

Frivolous tax positions reported on your income tax returns may lead to more scrutiny from the IRS. Each year at tax time, a list of the “Dirty Dozen” is posted at IRS.gov. Some of the most common issues include claiming your personal vehicle for business use, vague meal and entertainment expenses, and claiming financial losses for several consecutive years. The IRS may also request additional information if you report unusually high income or make frequent mistakes in your calculations.

Preparing for an Audit

Organization is the key to successfully handling an audit. This means having all of your business accounting records, receipts, and other financials ready for review by the IRS auditor. You should also answer all questions honestly. If you’re nervous about preparing and meeting for audit, consider working with an enrolled agent who specializes in representing their clients in these meetings.

With more than 25 years experience, Grayson Accounting, LLC in St. Charles, MO has helped business owners by providing bookkeeping services, general business and software consulting, including representation for IRS audits. The locally owned agency customizes its professional attention for the unique needs of small to midsize companies throughout St. Charles and St. Louis counties. Contact them at (636) 233-7875 or view extensive details about the firm’s full suite of services online.