No one wants to go through a tax audit, but if you’re a business owner in Washington, it’s something you should prepare for anyway, just in case. The good news is that certain steps can help make the process as smooth as possible.
Understand what the IRS usually looks for
The IRS audits tax returns to ensure reported information is accurate and complete. They’re also looking for any red flags that may indicate tax fraud or evasion.
If you have multiple sources of income, have documentation for all of it, which could include bank statements and invoices. The more documentation you have, the easier it will be to prove you’re not hiding anything.
Another thing the IRS will look at is whether you’ve taken any deductions you’re not entitled to. It’s one of the reasons why it’s essential to keep good records of everything you spend money on for your business. If the IRS asks questions about your deductions, you’ll be able to show them exactly what they need to see.
Finally, the IRS may also want to see proof you’ve paid your employees’ taxes, which includes federal and state taxes, Social Security and Medicare. If you don’t have the proper documentation, the IRS may come after you for back taxes.
Gather all your documents
Once you know what the IRS is likely to look at, start gathering the necessary documentation. This could include tax returns from previous years, bank statements, invoices and receipts. Organizing everything in one place will make it much easier to find what you need. It’s also a good idea to have a tax professional look over your documentation before you send it to the IRS. They can check that everything is in order and that you’re not missing anything.
By taking the time to prepare for a tax audit, you can make the process much less stressful and avoid penalties. Just remember to comply with the IRS’s requests and be honest about your tax situation. If you do, the audit should go smoothly.