What to Do If Your Shop is Audited

Feb. 22, 2024
Having the government in your business isn't fun, but the process might not be as scary as you think. 

If you’re a shop owner worried about being audited, you’re probably not alone.  

Nancy Williamson, a veteran certified public accountant and CEO and founder of Williamson Advisors in Austin, Texas, says she finds that business owners often have a lot of fear about being audited, but the chances of it actually happening are incredibly low.  

In fact, the chances of a small business owner being audited are just 2.5%, according to Rocket Lawyer.  

But if you do happen to be among the unlucky 2.5%, undergoing an audit isn’t necessarily as scary as you might think, Williamson says. And if you do find yourself in that unfortunate position, here are some tips that can help you navigate the process of an audit. 


Hire Someone to Help 

The first thing you should do if you find yourself being audited, Williamson says, is to hire a professional to guide you through the audit, specifically someone who has experience dealing with the Internal Revenue Service or IRS.  

That can be a certified public accountant or an enrolled agent. You’re probably familiar with a CPA, and it’s most common for those undergoing an audit to hire a CPA. But you may not be familiar with EAs, which are another excellent option who can help guide you through the process of an audit.  

While CPAs cover a broader range of services, EAs are solely focused on tax compliance. And many EAs have previously worked as an IRS agent. With their experience being specifically tailored to tax preparation and compliance, they can be a great resource for anyone looking for help being guided through an audit.   

“Looking for an EA to represent you might be a cheaper and more effective solution,” Williamson says. 

Whether you hire a CPA or an EA, the first step in working your way through the audit is to hire someone with experience dealing with tax compliance so you’re not handling the audit on your own.  


Get Organized 

Getting the necessary materials organized to deal with the audit is the next step. In fact, having all your tax documents organized is the best way to avoid an audit all together. 

“The way to audit-proof yourself is to have good books and records,” Williamson says.  

Having your tax documents, books and records organized is key to going through an audit as quickly and painlessly as possible. That starts with best practices throughout the year, like not mixing personal and business payments when using bank accounts or credit cards. And it looks like keeping track of tax documents, spending and receipts.  

“Keeping your books in QuickBooks, not having a box of receipts in an Excel spreadsheet, all of that’s the first step in making sure that if you get audited, you’re prepared,” Williamson says.  

If you are being audited and you haven’t kept track of spendings, receipts, etc., you need to track down those documents as quickly as possible. Williamson says you should call your banks, credit card companies and gather all the information necessary for going through the audit.  


Provide Information Requested 

If there’s a bright side to being audited, it’s that the IRS isn’t going to ask for every conceivable receipt, W2, 1099 or other document. They’ll only ask for the information that doesn’t line up with the information they have on their end.  

Williamson says the most common type of audit is a desk audit, which are triggered automatically if certain information doesn’t line up. For example, if the dollar amounts on a W2 or 1099 don’t line up with the dollar amounts the IRS has, that could trigger an audit.  

So, you’ll only need to provide the information that doesn’t match with what the IRS has. If it’s one specific item, prove that item. If there are several forms or receipts needed, provide those. Whatever materials the IRS requests, provide them exactly what they ask.  

“Get representation, provide the information that they request as simply and easily as possible and then don’t volunteer additional information,” Williamson says. 


Other tips 

If you’re reading this and don’t know that you’d be prepared for an audit, it might just be time to make sure your ducks are in a row. Even if you start being more organized now, that could help you in the future should you be unlucky enough to be subjected to an audit.  

“It’s going to be October of (2024) for maybe (2022’s) tax return, so there’s always going to be a pretty good time gap between it,” Williamson says.  

Williamson also says it’s important to remember everything with the IRS is negotiable.  

“Do the best you can and then prepare to negotiate,” Williamson says. “There’s payment plans with the IRS. There’s structured settlements with the IRS. They are not as omnipotent and scary as people think they are. They want to work with you.”  

This tip should go without saying, but if you’re getting mail from the IRS, don’t ignore it. “I can guarantee if your bank account got levied, you’ve gotten 5,000 pieces of mail that you’ve ignored,” Williamson says. So don’t ignore any notices and respond to and address them once you’ve received them.  

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