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How to prepare your business in case of a tax audit

Audit.IRS.Taxes.Those three words can strike fear into the heart of any business owner.No one wants to be audited.No one likes paying taxes.But unfortunately, they are a fact of life.So just in case you're ever audited, here's how to prepare your business for a tax audit.

When most people think of an Internal Revenue Service tax audit, they think of coming face-to-face with an IRS auditor who snuck into your office, waiting to pounce on you and your incorrect tax forms.However, about one-third of IRS tax audits are in the form of letters requesting explanations for various tax items on a tax return or supporting documentation.Many people also panic when they hear the words "tax audit."But don't worry.Chances are good that you were simply selected randomly to be audited, not chosen because of something that looked sneaky or shady to them.

If you receive a tax audit letter from the IRS, first examine your records to determine the nature of the tax audit issue. The IRS may want to audit your entire tax return or could audit just a small part of it.If the part in question concerns documenting a tax deduction or a tax credit, you should send the IRS copies of the relevant documents.Just remember not to send the originals, as they may get lost in the mail or at the IRS.It the audit notice concerns your entitlement to a tax deduction or questions a tax position that you have taken on your tax return, consult your accountant before responding to the IRS.If only a small part of the tax return is going to be audited, you should bring only those tax records that concern that part of the tax return.A full audit would request all your tax return information for that tax year.

To best prepare for an IRS tax audit, you, as the business owner, need to recall all the events of that business tax year.You should know who was employed by your company at that time as well as any financial problems you encountered that year.The best way that you could ever prepare for a tax audit is by keeping a good financial record during the tax year before filing your tax return.Then, if you've been told you're going to be audited, you will have all the information you need right at hand.

Remember that if you are being audited by the IRS, you are encouraged to have an accountant or lawyer present before the IRS commence their tax audit.You also have the right to appeal in IRS tax collections.Or, if things get really sketchy, you have the right to seek "hardship relief" if the IRS seizes property that would create a hardship for you.

The key is documents.You must have the proper documents that match the portions of your tax return that are in question.If you've done that already, then you're prepared.So just sit back and relax.Worrying won't help you.The auditors aren't out to get you.Remember that they're just people like you and me.And chances are very good that you'll be fine and be quickly on your way, done with the worry about taxes for another year.Most audits are short and simple, and end happily for both you and the IRS.

If, however, your audit does not end satisfactorily, or you think you've been unfairly judged, there are still options.All taxpayers are entitled to file an appeal if you feel an unjust decision has been made.If this is you, don't hesitate to contact your local IRS for the proper form to use in filing an appeal.

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