Most business owners are consumed with the day-to-day responsibilities of running and growing a successful company. However, filing taxes each year is just as important as generating profit. Putting the time and effort into preparing an accurate business tax return will go a long way towards avoiding IRS penalties and audits. The prospect of getting audited can be especially intimidating for those operating a small or mid-size organization with limited funds. The following guide offers insight into what triggers audits and how you should handle a notification from the IRS.

What to Know About Business Tax Return Audits

What Are the Odds of Being Audited? 

Fortunately, the likelihood of being audited is relatively slim. In 2018, the IRS reported auditing almost one million tax returns for the previous year, but this was only 0.5% of the total number of returns filed. Business tax returns have slightly higher odds of being chosen for an audit than individual returns, with 0.9% audited for the 2017 calendar year. The more money you earn, the higher your chances are of an audit.  

Factors That Determine Who Gets Audited 

There are several reasons the IRS may decide to audit your business. In some cases, they use random selection, and in others, companies are targeted because of questionable behavior from a partner or investor. Taking certain deductions also raise a red flag, such as meals, entertainment, home office, and car mileage expenses. Reporting a loss year after year, filing late, making cash transactions, and missing income are common factors the IRS looks for when determining who to audit.

How to Handle an Audit 

In the event you’re notified of an audit, this means the IRS wants to conduct a further examination of your business tax return for errors. To prepare, you should gather all your financial records that support the information reported on your return. It’s also a good idea to have your tax preparer present to answer questions about your return. Be respectful and honest with the auditor to help the process go as smooth as possible.

For help ensuring your business tax return is completed and filed correctly, turn to Michael C. Davis, CPA. He stays updated on all the latest tax laws and will keep your company compliant with IRS regulations. Based in Stow, OH, his firm works with entrepreneurs throughout Akron and Cleveland, providing unmatched accounting services and sound financial guidance. Call (330) 650-1344 to schedule an appointment, or visit him online to learn more about his offerings.