No one ever wants to go through a tax audit, but if you’re a small business owner in Texas, it’s something that you should be prepared for. Audits can be daunting; you will have to convince Uncle Sam that your records are as honest as you have been claiming. However, with the right approach and preparation, you may be able to survive the process unscathed.
Know what to expect
If your small business has been selected for an audit, according to tax law, the IRS will notify you by mail, or someone will come to your office. If you were contacted by phone or text, that might be a fraudster or scammer. The first thing you should do is to find out what type of audit it is.
Generally, the IRS conducts three types of audits: office, correspondence, and field audits. Office audits are the most common type of audits, and they usually take place at the IRS office closest to your business location. You will be asked to provide documentation to support your claims, and an IRS agent will go through your records with a fine-tooth comb.
Correspondence audits are less intrusive; the IRS will simply request that you send in documentation to support your claims. This type of audit can be easily dealt with as long as you have all the necessary paperwork on hand.
Amongst all audits, field audits are the most severe as they require an IRS agent to come to your place of business and investigate your records. This type of audit is usually done if the IRS suspects that you have been underreporting your income or claiming false deductions.
Be honest and cooperative
The best way to deal with an audit is by being honest and cooperative from the start. If you try to hide anything from the IRS, it will only make matters worse. Be upfront about your records and explain everything in detail. Most importantly, don’t forget to stay calm throughout the process; getting frazzled will only make it harder for you to defend yourself.
If you’re not sure how to respond to a question, ask for clarification or some time to consult or do more research on the matter. It’s better to take a few moments to think about your answer than to say something that could incriminate you.