How to Avoid a Business Tax Audit

With IRS audits on the rise, knowing how to avoid or resolve tax problems could save you money and protect your financial future. For anyone planning to start and/or grow your business, it is more important than ever to know what triggers an audit, how to avoid being audited and how to get tax help if the IRS is after you.


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    Avoid payroll tax problems. Generally, owing payroll taxes is the "kiss of death" for many small business owners, whether they operate as a sole proprietorship, corporation or LLCs. When it comes to payroll tax debt, the IRS has unyielding power and authority to collect. They have the power to padlock your front doors, putting you out of business, without obtaining a court order.
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    Hire a good bookkeeper and accountant. One easy way to avoid tax problems is to hire a good bookkeeper. You should have a capable bookkeeper that knows double entry accounting. Also, hiring an expert CPA or EA to prepare your return is a small annual investment that can pay off big! I would not recommend doing your own taxes unless you are a straight W-2 wage earner that takes the Standard Deductions (in other words, someone who doesn’t itemize or have any unreimbursed employee business expenses).
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    File your tax return on time, even if you don’t have the money to pay your tax bill. If you can’t afford to pay your taxes, you can still file your return on time and save 25% on the failure to file penalty right off the bat. What many people don’t understand is that filing an extension just puts off the inevitable, because it’s not an extension of time to pay, it’s just an extension of time to file. It is also important to know that it’s a misdemeanor in this country not to file a legally required return when it is due.
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    Penalty proof your small business when filing for IRS tax extensions When filing for an extension, it is important to avoid underpaying your taxes. If you are forced to file an extension (due to not having all your information organized) you must send a check with the extension (less what you withheld or paid in through estimated quarterly taxes that year) equal to 100% of your total tax liability to avoid underpayment of tax penalty. You may also penalty proof yourself by paying 90% of what you think you are going to owe.
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    Be forthcoming and honest in regards to your business expenses. The number ONE red flag in triggering a tax audit is claiming false business expenses. Monies from your expenses’ payments must be used for legitimate business-related activities. Many people end up in tax trouble when they used these monies for personal purposes and falsely characterize them as legitimate business expenses. This can be seen as a failure to report additional income on your tax return.


  • Get professional tax help. If your business is being audited by the IRS, the best thing to do is get professional tax help. Fighting the IRS on your own is like to going to court without a lawyer. A certified tax resolution specialist can help with monthly IRS payment plans, computational abatement of penalties, abatement of penalties due to reasonable cause, and analyzing the statute of limitation to assess.

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Categories: Taxes and Fees