Getting ready for a tax audit of your small business.

Filing tax returns and preparing for the tax audit is something that is seen as the biggest headache by the small business owners. The tension that he faces before a tax audit is very similar to the tension children face before the school test. As in case of the school test the syllabus is informed in advance, similarly the IRS informs the business about the specific sections of the tax returns, filed by the business that it wishes to examine. So that gives the small business tool owner enough opportunity to study and examine that specific area. On receiving the audit notice the first thing that you must do is to decide whether you can handle the situation on your own or you need a tax adviser to the represent your business on your behalf. Hiring a tax adviser would definitely mean some expenses but then this will help you to save your time, stress and even money.

Before we go on to the details of the preparations that need to be made for the tax audit, let us first see who can actually represent you for the tax audit.

As for the specifications of the IRS three categories of small business tool individuals have been pointed out who have permission to represent a taxpayer:

1. Certified public accountants

2. Attorneys and

3. Enrolled agents.

All these three types are bound by the rules of the IRS. Apart from these tax preparers can also represent you at the time of tax audit, but they are not allowed to represent you in any appeals beyond the tax audit.

For those small business owners who prepared their own returns and are comfortable handling audits, can go ahead and represent themselves on their own. Simple procedures like in cases where the IRS is simply asking you to validate the deductions you may be able to do it on your own. However, in case you are not sure about the workings of the tax returns and audits then youll need the assistance of a tax adviser to act on your behalf.

If youre handling the audit all by yourself and during the course of the audit you realize that you cannot handle it on your own, then as per the taxpayer bill of rights you can request the audit to be suspended till the time you engage a professional to handle it for you. On your request the agent from IRS will stop the questioning and will not ask for more documents until your representative comes to aid.

The documentation:

The documentation work should be carried out well in advance to ensure that youre not falling short of any receipts and documents at the last moment. Tax audit is not an easy job and you need to organize everything in advance.

The documentation and your preparation should specifically address the area of concern as stated in the audit notice. Begin by organizing the documents and receipts into one or two folders on the basis of the priority. The auditors are not interested in seeing large dumps of files small business tool containing receipts and paperwork, so you need to have the precise information required which has been carefully organized into folders, so that the auditor can review everything easily.

By being precise we mean you need to carry documentation which is specifically related to the return in question and not your earlier returns. What the auditor is interested in is this specific matter that has been highlighted in the notice that was sent to you; accordingly you need to have each and every document which is related to that specific issue only.

You cannot afford to take the audit notice lightly because it is issued by the IRS which is the definitive bill collection agency in the U.S. In case after the audit has been conducted and the businesses is required to pay more money, the sooner you do it the better for you, as not paying this money in time will result in interest and further penalties being charged over this amount.

The winning strategy

If you choose the right approach to a tax audit, chances are that you will owe less tax money. And in case Of the wrong approach you will end up being a loser and will have to pay much more in terms of taxes and there are also chances that the tax audit may be extended to some other parts of the return as well. Here is a list of things that you can do to end up as a winner:

* Contrary to the common belief most auditors are decent human beings who are just trying to do their job. They pretty well realize that taxpayers are least interested in having an auditor checking on their business. The point is that you dont have to make them feel awkward; rather you should have a relaxed approach. The best way to get this thing done small business tool faster and without trouble is to cooperate well and work respectfully.

* It is advised that the business owner should stick to the particular section of the tax return as mentioned in the notice. If you talk about other areas or things you may be diverting the attention of the auditor thus delaying the work and at times irritating him. Quite often the extra talking results in the auditor probing into other matters as well, that way you would be inviting trouble for yourself.

* Arguments never end up in a solution so even when you disagree you have the right to state your case but try not to argue. If the tax auditor does not accept your case dont end up in a spin out confrontation. Annoying the auditor will only get him probing deeper, resulting in escalated tax problems for you. If you feel that your specific question has not been answered or addressed you have the right to approach higher authorities and even go to the tax court to resolve the matter.

* The last point we wish to emphasize here is that getting intimidated will not solve any purpose. Quite often it has been observed that the auditors are not all that well versed with taxes, so you need not fear the auditors. In fact most tax advisors know the tax system better than the average tax auditors appointed by the IRS.