What raises the red flag for the IRS to audit your business or company?
It’s common for the IRS to randomly choose accounts to audit, but what does it take for them to go after someone directly?
Math mistakes, hiding income, deduction overkill, and round numbers are all red flags for the IRS.
An IRS audit, as you may know, is an examination or review of your information and accounts to ensure you’re reporting your financials correctly. Any misstep at all can result in fees or fines. Any ongoing missteps can result in more than paying fees and fines though.
The IRS wants to minimize the “tax gap” when they audit accounts. This means they want to close the gap on what they’re owed versus what they actually received. While this sounds simple on the surface, the IRS can destroy a business or company that avoids legal tax obligations and legal tax obligation reduction.
The tax law/code is written so that businesses and companies are incentivized to act in a specific way. Once you understand this, you can reduce tax obligations according to how the IRS wants you to do it!
With that being said, I’m going to answer some of the most common questions I get around IRS audits against businesses and companies.
4 IRS Audit Questions Answered
How Likely is it to Get Audited by the IRS?
If you take some time and Googled this question, you’d find statistics and probabilities all over the internet.
However, here’s a general rule to follow. If your adjusted gross income is over about $500K, you’re more than 1% likely to get an IRS audit notice.
In other words, the more you make, the more they take – and the more they want to make sure you’re paying your appropriate tax obligations, but…
There are legal, ethical ways to reduce tax obligations according to the IRS’ own tax code.
This is why having a professional in your corner to help plan and prepare taxes, as well as act as your outsourced accounting department, can help you save a ton in tax obligations.
How Bad is it to Get Audited by IRS?
The seriousness of an audit can range from 1-10 (10 being the worst-case scenario). It all depends on your financials and activity. The quickest way to reduce IRS audit scares? Bring your books current, create weekly or monthly reports and statements, and forecast your financial future.
This is why I’m your outsourced accounting department – to manage your financials so the IRS has no reason to audit your account on purpose.
Who Gets Audited by IRS the Most?
If we look at the rate of audit, the highest earners get audited the most frequently. Those who take home more than $10M per year get audited more often than those who take home less than $500K per year.
While the stats show owners and executives getting audited more often, you can prepare and plan to reduce tax obligation according to the tax code the IRS uses to audit you. This means there are ethical and legal ways to protect your business, shelter money, and reduce obligation built into the system – but you already knew that, right?
How Do You Know if the IRS is Auditing You?
In the majority of cases, you’ll get what’s called a Notice of Audit and Examination Scheduled. This means the IRS is officially notifying you of their intent to audit your company, income, or more. The notice will specify the particular items being reviewed. It will also request the records required to clear your company and name from the audit.
This is only phase one of an audit, but if you keep a good record, create spot-on reports and statements, and keep an outsourced accounting department on staff, then you’ll have a much easier time knocking down IRS audits.
How to Outsource Your Accounting & Bookkeeping Department
I deliver spot-on, accurate reports weekly, monthly, quarterly, or whenever you like.
I reconcile and bring books current – the very first time, so you can work on growing your company instead of struggling inside of it!
I forecast your financial future so you can grow your company toward financial success.