When tax season rolls around each year, it is with a mixture of expectation and hassled feelings to organize one’s paperwork. The fear of being audited is sometimes a concern if anything other than perhaps an 1040EZ form is being filed. If it is a strain for the individual, it is even more so for a business, particularly a small business.
A commercial business audit is likely to bring some feelings of unease. After all, the business’s bookkeeping skills are essentially being called into question. An accountant or tax preparer is not a surefire method of avoiding an audit either. Misstatements happen, which is why it is an excellent idea to keep detailed records, such as expenses and the reason for the expense.
Tax preparation can be done by yourself or through a professional service. One study on tax preparation method preferences in the U.S. found that 21% of filers liked to use tax software themselves. There is an illusion of safety when a professional does it for you, though some chains do offer filing protection.
Each year, Americans spend an estimated $140 billion through taxes alone. That number includes individual filing and businesses. Approximately 1% of filers are audited; usually, an audit occurs because more supporting information or proof is needed. A cash flow analysis that shows something suspicious might result in a commercial business audit.
Americans spend quite a bit of time on preparing and filing their taxes; approximately 7.6 billion each year by some studies. Auditing standards for state filing may be different across the board. A new business start-up in one state may get more leniency than one in another state. Sometimes, the filer may qualify for deductions of which they are not aware or are reluctant to take for apprehension of a commercial business audit.
In short, if you are a smaller business and tax season is a stressful time, remember that an audit is not as damaging as it is portrayed. Keeping good, detailed records is one way be prepared, both for filing and potential audits.
