Terror in
the Mailbox:
Audits and How to Survive Them
by Terri Lonier
If there's anything that can strike terror in the hearts of
most soloists, it's the thought of a tax audit. Spiders, snakes,
vampires, werewolves, and sharks all fail to create as much
fear as an envelope with an IRS return address.
In actuality, less than 1% of the total number of tax returns
filed each year are audited -- and the number won't likely increase
anytime soon because the IRS is facing budget cuts just like
the rest of the U.S. government.
To lessen the likelihood of an audit, it's often a wise financial
decision to turn to outside professional help. However, even
if you hire a tax professional, the final burden of proof during
an audit is on you, the small business owner. So when it's time
to file your annual return, choose your preparer carefully and
review the work done for you.
Remember, the IRS has up to three years after you file your
return to audit it. For example, an audit of your return filed
in April 2006 (for 2005 taxes) must begin by April 2009.
If you're facing an audit, suppress the queasy stomach and shaky
knees and keep these tips in mind.
1. Don't ignore it.
Whatever you do, don't ignore the IRS letter informing you of
an upcoming audit. If they don't hear from you, they assume
you are in the wrong, and things can quickly escalate to become
even worse.
2. Be prepared.
The office audit is the most common form of IRS review. You'll
be asked to bring records documenting specific areas of your
return -- office-at-home deductions or charitable contributions,
for example -- to the area IRS office to meet with a revenue
agent. Before your appointment, review your records and be prepared
to answer and defend your reasoning.
3. Stay cool.
The meeting with an IRS representative is an adversarial interaction,
but it doesn't help your position if you're hostile. Stay cool,
calm, and collected.
4. Keep quiet.
On the other hand, it does you no good to be chummy with the
IRS agent. Answer the questions posed to you, but don't offer
any additional information. This is not the time for casualconversation
-- one slip could open up a Pandora's box leading to investigations
of other areas of your return.
5. Call in the troops if you need
them.
Whether you'll need professional help at an audit depends on
the areas up for review. If you're asked to provide substantiation
for records and you have them, you probably can provide them
on your own. If it's in a more complex area, don't be shy about
having your tax advisor assist you -- either by preparing you
before you go, accompanying you to the meeting, or attending
in your place.
While audits may not be pleasant, there's little reason for
dreading them if you've kept your financial records organized,
up to date, and separate from your personal business. With luck,
you'll never have to face one. If you do, solid recordkeeping
will enable you to sail right through and survive even the closest
scrutiny.
Copyright 1997-2007 Terri Lonier.
All rights reserved.
This article may not be uploaded to another Website. You may
hotlink to this page, if you wish.
|
|
