Businesses should not be surprised if they receive a tax audit letter in the mail in the upcoming months. Federal and State agencies are increasing audits in an effort to capture much needed tax revenue.
In a recent study, a tax advisory firm examined over 900 accounts that have been audited. Of this group, more than 50% said that they had received letters from the Federal Government with errors found on their taxes. Also, almost 40% said that they had received a letter of audit from the state.
Over the next tax season, the increase in audit activity is projected to be up more than 50%. Because of the budget issues, all agencies, including the Federal Government, are taking extra precautions to bridge the shortfalls.
It’s extremely important that all businesses are aware of the increased potential risk for an audit. With increased scrutiny, it is very possible that those who have always worked “off the radar” of the tax police just might find themselves with a certified letter from the IRS and/or the state.
So now what? I suggest taking the necessary precautions to ensure that all taxes have been handled properly, BEFORE the audit letter comes. It’s never to late to prepare and clean those books up. An audit, even if done through the mail, can be a strenuous time and being unprepared makes this an even larger strain (and it can be costly -- $$).
Here’s how to get started. Audit the company’s accounting practices, tax returns and internal processes to assess their preparedness for a potential audit. Get organized, stay organized, and identify the people it would require if an audit were to occur.
Hire a good accountant and/or CPA to help. This will give the company’s operations personnel the time to do what they do best – work in and or on the business, not “counting company beans.” At the same time, the capable accountant and/or CPA will make sure the accounting house is in order. (And, the indirect result will likely be that the company will run more efficiently and make more money because of the accounting information that can be given to company executives, sales people and operations departments.)
One thing is for sure, no matter what the type of business or where it is located, there is going to be increased scrutiny of tax reporting and payment by the IRS and state agencies. The government and most states have a deficit and a good way to cover the gap is to take it out on businesses and individuals who are not prepared for the probability of an audit.