Six Misconceptions About Tax Audits in Westchester County, NY: Knowing the Facts to Avoid Unnecessary Expenses

Every year, business owners have to file tax returns and face the possibility of an IRS audit. Small business audits are a source of fear and worry for business owners in Westchester County. They tend to entail more accounting expenses that affect the bottom line of a company. While avoiding an audit is not possible, knowing what triggers it can help business owners avoid a tax audit and reduce their accounting expenses. Tax audit misconceptions have become prevalent and cause business owners to waste money in futile efforts to avoid audits. If you own a small business, partnering with a tax accountant in Westchester County, NY can help you avoid tax audits and the expenses related to believing in common audit myths. These myths include the following:

Overpaying Can Help You Avoid Tax Audits

Paying more corporate taxes than you owe the IRS will not diminish your risk of being audited.  The tax agency won’t adjust for you, no matter how huge your payment is. You will be audited and must resolve the problem yourself. Overpaying is just a waste of company money. When filing corporate tax returns, accuracy is key. To ensure accuracy, carefully keep receipts and records throughout the tax year. 

There is Only One Kind of Corporate Tax Audit

Corporate tax return audits come in the form of a correspondence audit, a random audit, or a field audit. Often, the IRS performs a correspondence audit if it spots a math error in a company’s submitted audit. A random audit can be performed to encourage entities to file returns accurately. Lastly, a field audit occurs when the tax department senses that a company’s number of write-offs is suspiciously high. 

As a business owner, do not invest too much effort and time into avoiding tax audits. Remember that every business is at risk of being audited randomly.

The IRS Does Not Understand Appropriate Industry Deductions and Expenses

Once the tax department processes corporate returns, it compares these to other company returns that operate in the same area and industry. Because of this comparative processing, the IRS becomes familiar with the appropriate deductions and expenses for a given company. Thus, suspicious and unfamiliar expenses may be noticed. So, business owners must consider the expenses they claim may compare with their competitors’ expenses when trying to reduce audit risks. 

The IRS only Sends Audit Correspondences

Just because you get a letter from the IRS does not necessarily mean you are being audited. Before you make this assumption, analyze the letter carefully. There is no point in investing energy and time into preparing your records if you can resolve the problem with a response from your tax account. There are many reasons the IRS can send you letters. A correspondence may only mean an incomplete tax return or a spotted calculation discrepancy. 

Tax Audits are Intimidating

While the prospect of an IRS audit can be intimidating, the right support and proper preparation can make the process manageable. To prepare a tax audit, collect all vital documentation.  Also, having an accountant on your side can make a significant difference. 

You are in the Clear Once You Get a Refund

Even if the IRS has paid a refund, this does not necessarily mean you avoid an audit. Although the tax agency will try to audit returns when filed, the volume of tax returns it needs to handle means it takes a long time to complete them. 

Sometimes, a computerized system that finds numbers beyond the statistical norms for the same returns can flag returns for audits. Also, the IRS may choose returns for audits as they include concerns or transactions with investors or business partners who have been chosen for scrutiny.