Small- to medium-sized businesses are at a relatively high risk for an IRS audit. It’s easy to make mistakes on your taxes, especially if you don’t have a professional accountant or an accounting department. Receiving this notification can be stressful, but preparation will help protect your financial interests and streamline the subsequent process.

A Business Owner’s Guide to Being Audited

Who Gets Audited?

The Internal Revenue Service audits less than one percent of all tax returns filed each year. Tax returns that have unusual deductions or information when compared to other similar returns will be selected. If you deduct many more business expenses one year than you did the year before, for example, it can raise some red flags. Businesses that show losses, have large deductions in relation to their income, or have deductions that seem odd for the industry may also be pulled.

The IRS selects returns to be audited in two main ways. They use an automatic system that will look for irregularities and assign “points” to each return. If your return garners enough points, it is automatically chosen. You may also be selected if someone you are affiliated with—an employee or another business, for example—has been audited and the transaction between you was deemed unusual.

How to Prepare

The IRS will notify you of the audit by mail. Contact an accountant for representation as soon as you receive that notice. The IRS will send a written request will all the documents they want to see for up to three years back. This may include receipts, bills, canceled checks, loan agreements, legal papers, and employment documents.

If you need extra time to assemble these documents, your accountant can submit a request for an extension. Once the papers have been gathered and examined, you can agree with the government’s findings and pay any money owed or request a conference with an IRS manager if you disagree, armed with your gathered evidence.

The state-licensed professionals at Selph and Friday, CPA in Texarkana, TX, are here to help with your IRS problems. They have more than 30 years of experience working with both tax preparation and audits and are familiar with the tax laws surrounding small- and medium-sized businesses. Learn more about what they do online. Call (903) 792-0281 to schedule an appointment with an accountant.