One of the most stressful times of year is none other than tax season. Tax season is a situation where some people will be happy they hired an accountant and a situation where others will say that they wish they had the help of an accountant. However, taxes can be very simple when you have all of the important information. So here are some important tips on handling a tax audit.
An IRS audit is relatively easy to deal with because it involves one of three situations. A correspondence audit involves taxes being sent by mail. An office audit involves you visiting an IRS office with your tax information for a tax audit. Finally, the field audit process which involves IRS officers that come to visit your place of business. The IRS can audit any business tax return within three years of filing, and it can collect back taxes owed for up to 10 years.
Business owners who fail to submit at least 90% of the taxes they owe may be subject to penalties. If anyone that is looking towards a tax audit should understand this fully. This will help them avoid penalties and they can keep their hands clean in the process!
Civil fraud penalty refers to a penalty for underpayment of tax that results from a fraudulent activity. If you fail to pay the taxes or underpay the taxes you owe, you will be charged 5% to 25% of the unpaid tax each month. So when it comes to a tax audit it is best for everyone to be 100% honest to avoid committing crimes and having to pay interest on taxes. You can face penalties if you underreport your income by $5,000 or by 10% of your actual income.
According to a CNBC Small Business Survey, 22% of small business owners didn’t know their effective tax rate in 2016. This can come back around to bite a business owner when it comes to a tax audit. A simple misunderstanding can turn into a serious situation once the IRS gets involves. So be sure to stay on top of any and all information involves in paying taxes.
Businesses are required to pay quarterly estimated taxes if they owe taxes of $1,000 or more. Be sure to keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction. Deductions can be helpful for people who run their own business because it allows for them to expand their budget.
Out of all the 1 million audits of individual returns in 2016, more than 23,000 taxpayers disagreed with the auditors’ findings and disputed $1.6 billion of suggested additional tax. So if you find yourself in a situation where your numbers are different than the IRS’ numbers, do not panic. There are some situations in which the IRS may be wrong and they can potentially refund you money!
In Conclusion
Every single year a tax audit will take place in large businesses and small businesses. As long as you are able to stay on top of your taxes and all of the tax laws you will be in the clear!
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