In the majority of cases, it makes sense for a small business to hire a qualified tax audit or CPA firm or even attorney to help handle potentially controversial tax issues. Actually, it helps to have a CPA expert on your side in case the IRS decides that your small business owes it some tax dollars.
Only a minute percentage of IRS tax returns are subjected to IRS review. Yet, when your small enterprise is one of the affected few, there are measures that you need to grasp and implement to improve the probability of a pleasant IRS tax audit outcome.
It’s possible for a small business to beat an IRS audit by implementing the tactics below:
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Punch Holes into the “Hobby Loss” Theory
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Theres’ the possibility that a specific business activity may be viewed as a hobby for tax purposes. The “hobby loss” concept holds that deductions are minimal when an activity is not engaged by a company for profit purposes. In case you want to content the rejection of business losses on the basis of the hobby loss concept, it can help to show the specific activity was a business profitability move. In such a scenario, you’d have to offer the IRS agent information demonstrating a pertinent marketing campaign and its ties to business profitability objectives. You may also argue and show that your business has been successful in the past, and provide evidence of reasons for the reported losses.
Take Advantage of Missed Deductions
An IRS audit is an ideal time to submit evidence for expenses (if any) that you left out in your tax returns. Don’t underestimate the significance of costs linked to the running of a home-based office and business mileage. In addition, there’s the possibility of paying more than required of you in case your tax deductions claims fail to mention charitable expenses and transportation associated with charity and medication.
Use Innovative Ways to Validate Your Deductions
In certain cases, your small business may not produce documentation validating expenses features in your IRS deductions, but that’s not the end of the road. Third-party confirmation, such as Google maps or customer files, may be acceptable to the IRS as evidence of reported business mileage.
Consult a Tax Audit Firm
If just the thought of the pending IRS audit sends you cold shivers, it’s extremely logical and meaningful to get in touch with a tax audit professional, for example a tax lawyer, accountant, or CPA firm that can confront the IRS on your behalf. But before you can give any firm the legal authority to face the IRS on your behalf, you need to research their background and ascertain that they’ve competently handled many similar matters before.