Tax preparation

An integral aspect of operating a business is maintaining detailed financial records. While this information is needed in order to make important decisions that directly impact the business, it is also necessary when filing taxes. It’s important to note that even when businesses pay their taxes on time and for the correct amount, they may still be audited by the Internal Revenue Service (IRS).

The Three Types of Business Tax Audits

There are different types of business tax audits that are conducted by the IRS. These include correspondence audits, office audits, and field audits. A correspondence audit is conducted by mail. For an office audit, business owners actually go into the IRS’s office. When the IRS conducts a field audit, however, their representatives will visit a place of business.

Business Audit Examples from 2014

Businesses are required to file a Schedule C. Basically, this form notifies the IRS of any profits or losses that are experienced by that business. While there are a variety of factors that will determine why the IRS audits a particular business, gross receipts do play a role in this.

In 2014, for example, when businesses submitted gross receipts of $25,000.00 to $100,000.00, they were audited at a rate of 1.9%. Businesses that had gross receipts of $100,000.00 or higher, however, were audited at a rate of 2.3%.

Small C corporations with less than $10 million in total assets had a one percent audit rate overall. Those companies that had assets ranging from $1 million to $5 million had a 1.2% audit rate. When companies had $5 to $10 million in assets, they had an audit rate of 1.9%. The highest audit rate during 2014 was for C corporations with assets ranging from $10 million to $50 million. These corporations had a 6.2% audit rate.

The Importance of Having Business Advisory Services

There are a variety of situations where businesses and C corporations may benefit from having ongoing business advisory services. An accounting firm, for example, can assist with tax and audit preparation as well as other relevant services.

When businesses file their tax returns, it’s important to note that the IRS is able to audit any returns that have been filed within the past three years. Furthermore, the IRS is also able to collect any back taxes that may be owed for up to ten years.

In the event that a company has underpaid or not paid its taxes, for example, they will be charged between five percent to 25% of these unpaid taxes every month. In some cases, this underpayment may be due to the company engaging in fraudulent activity. As a result, a civil fraud penalty will need to be paid. This amount may be similar to the penalties paid by companies that weren’t engaged in fraudulent activity.

These are just a few scenarios that businesses may encounter. When advice is needed, whether it pertains to one of the situations above or another matter, it’s important to schedule a consultation at your earliest convenience. Since accounting firms have experience with these and other financial matters, it makes sense to consult with a firm that specializes in this area.