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Can You Avoid An IRS Audit?

By Don Sadler

Few things are more frightening to micro-business owners than learning that they’ve been selected for an IRS audit.

In reality, the odds of being chosen for an audit are small. Only about 1 percent of all tax returns that were filed in 2009 were selected for audits, reports the IRS. Still, it’s not unusual or even irrational for owners to fear even the slightest chance of being audited.

Keith Hall, a certified public accountant and the NASE’s National Tax Advisor, says that business owners shouldn’t dread an audit if they have nothing to hide from the IRS.

“If you’re honest in completing and filing your tax return and aren’t trying to cut corners, underreport income or claim deductions you’re not entitled to, then an IRS audit is a piece of cake,” says Hall.

The key to making sure the audit process goes smoothly is thorough documentation and recordkeeping, he adds.

Roger W. Lusby, III, a certified public accountant and tax partner in the Alpharetta, Ga., office of Frazier & Deeter LLC, notes that many IRS audits are now simple mail audits, not the more complex face-to-face compliance audits most people envision.

“With these, the IRS simply asks for more details or documentation to support specific items on the tax return,” Lusby says.

Still, most owners would prefer not to find an IRS letter in their mailbox.

So are there actions you can take in preparing your tax return that will help reduce the odds of being audited?

Yes, say the experts. Follow these tips.

Understand How Returns Are Selected for Audits

For starters, it helps to understand how the IRS chooses returns to be a...