Problem Areas That Trigger Corporate Tax Audits, Business Tax Audits in Austin And Dallas, TX

Posted by Scott S. on March 12th, 2023

Many small business owners believe they are safe once their tax returns are filed within the due date. Unfortunately, the possibility of receiving a tax audit letter remains high for many business entities. There is no reason to feel irritated and anxious about answering the queries put forward by the IRS, however. It is helpful to approach a professional well-versed in handling corporate tax audits, business tax audits in Austin and Dallas, TX.

It is essential to be prepared for such an eventuality even when one believes nothing is wrong with the return filed. Statistics reveal that almost 2.5% of small business owners are audited by the IRS annually. It is not the end of the world. One must try to understand the process and know how best to solve the problems.

Some of the facts that one needs to be well aware of include the following:-

What does it mean to have the tax returns audited?

The process is merely an examination of the tax returns filed for a specific financial year. Seasoned tax auditors undertake the procedure to verify the accuracy of information provided to the IRS. The auditors will check the compliance of both individual and business tax returns filed with the IRS and note whether it meets State and Federal regulations. The following reports are scrutinized to find discrepancies if any:-

· Taxable income

· Losses incurred during the financial year

· Expenses made individually and on behalf of the business entity

· Tax deductions claimed

IRS Audit Process

The IRS selects a few of the thousands of tax returns filed annually to check for compliance. Being informed about the process is important instead of having anxious moments.

Possibilities of an IRS Tax Audit

The chances of a small business being audited by the IRS are reasonably low. It may be essential to contact a tax professional to file the returns properly without triggering any of the red flags, namely:

· Use of Round Numbers- It is human nature to use round numbers when estimating. The IRS tries to identify big numbers ending in zero that indicates guesswork. Doing so while reporting expenses is a strict no-no, as it is a sign that the purchase receipts have not been checked or retrieved when filing the return

· Business Loss Claims- Small businesses may run at a loss for the first few years until they even out. Claiming business losses for each year for a long time is likely to alarm the auditors. This is one of the top reasons for being audited.

· Failure to report the income- Not reporting an income source is a common mistake most individuals make. The IRS is extremely strict about lack of information, especially when the figures do not match. Not informing the IRS about any source of income is likely to send one to prison.

It is advisable to have a professional experienced in corporate tax audits and business tax audits in Austin and Dallas, TX, to accompany one for the audit.