Avoid A Tax Audit: 5 Tips
 By Stephen A. Lanvil

They may be the seven most frightening words in the English language: “You have been selected for an audit.”

This fear is top of mind for many small-business owners right now as they work on preparing their annual tax returns. Here are a few suggestions for things you should and shouldn’t do to help decrease the chances that your business is selected for an IRS audit.

1. Check (and recheck) your math on your tax return
The IRS computers automatically correct many mathematical errors, but these kinds of mistakes do point to a sloppy return. Similarly, be thorough and neat. Don’t leave any questions unanswered or blank spaces empty. The last thing you want to do is give the IRS a reason to take a second look at your return.

Using tax preparation software can help you avoid careless math errors. And AFS Members can get a 15-percent discount on TurboTax^® Online, the No. 1 tax preparation program.

There’s no software to install with TurboTax Online. You can prepare your taxes for free and pay only when you’re ready to file or print. Plus, you can file electronically.

2. Include documentation and explanations on your tax return
If you have unusually large expenses, attach a copy of the checks or receipts to your return; this may satisfy an examiner’s curiosity without an audit.

Also explain any glaring inconsistencies in your return from one year to the next, like name changes or drastic variations in income.

3. Properly categorize all expenses and deductions on your tax return
Try to stay away from the “miscellaneous” and “other” categories of deductions. Big numbers in these areas can attract the attention of IRS examiners.

Instead, carefully report your deductible expenses on the proper lines of your tax form. Not sure where a certain expense should be reported? Turn to TaxCentral.

As an AFS Member, you have access to TaxCentral’s exclusive Schedule C Interactive Tax Planning Tool. Use this tool to see line item information related to your business and to accurately complete your Schedule C.

At TaxCentral, you can also download a copy of the Schedule C and its instructions with a direct link to the IRS Web site. The easy-to-use calculators at TaxCentral can even help you figure your home office deduction.

4. Make sure the numbers match
If you’re an independent contractor and receive Form 1099 from your clients, copies of those forms are also being sent to the IRS.

The IRS computers will compare those to the amount of income you report on your federal tax return. If the numbers don’t match up, you could be headed for an audit.

5. Get answers to your questions
Take the guesswork out of completing your tax forms. Get the help you need.

The certified public accountants at ProTax can answer all of your questions about filling out your business tax return. Simply submit your question to the online CPAs. You’ll receive an accurate and confidential answer within about one business day.

The online CPAs at ProTax can answer questions such as:

• How do I take a deduction for the business use of an automobile?
• Do I qualify for the home office deduction?
• On what tax line do I report my advertising expenses?
• Can I write off the cost of a dinner with a potential client?

(Posted March 2009)

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