3 Ways to Avoid an IRS Audit

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Getting audited by the IRS is not fun, but there are steps you can take to increase your chances of surviving a tax audit. It starts with decisions you're making today as a self-employed or small business taxpayer.

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IRS audit red flags for a small business

Every taxpayer is curious about how to avoid IRS audit flags. One way is to pour over the Internal Revenue Manuals used by personnel while they're conducting tax audits. You can view the questions the IRS agents are likely to ask including document requests. The information allows you to better prepare your audit defense.

How much does an IRS audit cost?

Not only do you have to pay a professional to defend you, but there's also the lost value of your time. And if it's a severe case, the IRS may interview your employees, which means it interrupts your business operations and income. The total could rise to tens of thousands of dollars.

How to avoid an IRS audit (small business)

#1 Don't use round numbers

Using round numbers likely means you're guessing. It's very rare to have an entirely even figure for your total expenses or mileage (e.g., $10k or 10,000 miles). If you don't have the evidence to back up your claims, then don't place it on your federal tax return. 

#2 Send 1099-MISC forms

Don't risk an audit by not filing 1099s. You must transmit Form 1099 when you hire a non-employee to perform a service (and they do not fall within a filing exception). Have your accountant prepare and send the forms on your behalf which are typically due January 31st. Examples include a web designer, transcriptionist, landscaper, or copywriter.

#3 Stick with one accountant

The IRS doesn't restrict you from having a different tax preparer each year. However, it's best to form a long-term relationship with a qualified accountant, so they're familiar with your file and household. When you jump from one accountant to another, your tax return is more likely to contain errors and omissions.

DISCLAIMER: Please consult with your accountant, attorney, and financial advisor before implementing any information displayed on this website. DIY research does not replace the advice of a licensed professional who has thoroughly reviewed your file.