Posted by Keith Hall (NASE National Tax Advisor) - There are a great many horror shows that keep us up at night wondering if anything or anyone might be hiding under the bed. Psycho, Friday the 13th, Nightmare on Elm Street, you name it! Most of us know that these stories are not real, yet our hearts beat faster and our sleep comes slower just thinking of them. Perhaps none of these classics can accelerate heartbeats nor steal as much sleep as a small business owner’s fear of an IRS audit.
The overall chances of being audited in any one year are only about one percent - one out of a hundred! If you file a Schedule C with your tax return, your chances go up to about three percent. The really scary number is that over the life of your small business, your overall chances of being audited at some point, is about 50/50 - one in two! Now that is a nightmare waiting to happen. If you only knew which one of those tax returns was indeed going to be audited? And that brings me to the real point of my little tirade here.
The best way to survive an IRS audit is to prepare each tax return assuming that return will indeed be audited. Don’t take any shortcuts. Make sure every number that you include on that return has the appropriate support. Remember, you need to come up with that support anyway in order to even put the number on the return. Don’t guess! Take your time. Dot your ‘i’s and cross your ‘t’s. It is time to prepare your 2011 income tax return, and now is the time to make sure that return will survive an IRS audit. Don’t wait for two and half years hoping that you won’t get that dreaded letter from the IRS. Instead, take the time to prepare that 2011 return as if it were going to be audited and if you indeed get that letter, you will be so glad you did.