For businesses filing their taxes, getting audited can actually be a good thing, says Sheila Brandenberg, a New York-based CPA.
“Businesses are generally audited on a pretty regular basis and that's great news for them, because perhaps some deduction or item was missed on their return,” she says. “If they know they’re going to get audited, they’ll have an opportunity to fix it.”
A tax audit involves the IRS or a state tax agent double-checking your business numbers and tax forms to make sure there aren’t any discrepancies. Brandenburg says businesses are chosen at random through a computer lottery to get audited but the chances of getting audited are still small: according to the IRS, taxpayers have a 0.6% chance of being audited. Small businesses have a 0.7% chance of being audited. Large corporations, or those that claim taxable income of $1 million or more for three or more years before the current tax year, are more likely to be audited, with a 7.6% chance, according to IRS data.
Whether an individual or a business, when the IRS plans to conduct an audit, it will send a notice through the mail, requesting necessary documentation: W2s, 1099 forms, invoices, bank statements, and other additional documentation related to your business. It’s rare you will deal with an agent in person: 75% of audits are conducted by mail.
While there is no limit to the number of times you can get audited by the IRS, it’s important to keep good documentation. That way, if you are audited, you should have nothing to worry about, Brandenburg says.
“An audit is nothing to be afraid of or concerned about,” she says. “If you document all of your deductions and your business activity, you’ll be fine.”