Well, the IRS is true to its word. In 2007, they performed 65% more audits on individual taxpayers then they had the year before. And it was successful! They raised $59.2 billion of tax, penalties and interest last year alone.
What does that mean for all of us? An increasing chance of IRS audit. Now, more importantly, what can you do about it?
The best defense is good records. And the best time to put that defense in place is now. As you’re getting your records together for your CPA to file your tax return, make sure you have copies of business receipts and proof of payment (cancelled checks, credit card statements, and bank statements) for all business expenses. Take a picture of your home office to prove it really has a business purpose. If your children work in your business, make sure you have a written job description, time sheet and pay a reasonable wage.
Audits of business returns only rose by 16%, thus widening the gap between audits of Sole Proprietorships (which report on individual returns) and audits of Partnerships, C Corporations and S Corporations. (Form a structure today!)
If you are involved in any “listed” tax shelters, make sure your CPA is making the proper disclosures on your tax return. The list is growing, so make sure you’re up to date. Failure to follow this rule could not only subject to you to very tough penalties, but criminal charges of fraud.
If you get a notice that you are being audited, don’t ignore it. Don’t go to the audit by yourself. Get an experienced CPA to help you with the audit. It’ll be some of the best money you ever spend.