How To Be Audit-Proof

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If you're in business, you have around a 1 in 100 chance of being audited by
the IRS. If you run a business from home, your chances go up about four
times. As long as you keep your books in good order, though, an audit is
nothing to be scared of. The IRS won't audit you just to harass you. They
just want justification of certain items on your tax return. There are two
important things to do if you get audited, though, that can protect you and
your business from undue problems.

When the IRS notifies you that you will be audited, they will give you the
choice of having the audit meeting at the IRS office, or your office. ALWAYS
HAVE THE AUDIT TAKE PLACE AT THE IRS OFFICE! Many business people think that
they should have the audit in their own office, so they feel more
comfortable. This is the WRONG thing to do. If you let the IRS agent into
your office, you have given him or her the opportunity to view your whole
operation. They will definitely be looking for other things to question you
about, besides the original audit item. If you have the meeting at the IRS
office, it forces the agent to focus on the original item.

The second thing you should do goes along with the first. When you go to
the IRS office, THE ONLY PAPERS YOU SHOULD TAKE WITH YOU ARE ONES DIRECTLY
CONNECTED TO THE POINT OF CONTENTION! If the IRS has a problem with a
certain deduction, say travel expenses, take the receipts that will back up
the deduction, AND NO MORE! If you take your complete set of business
records, the agent is sure to take some time "looking for backup information"
for your deduction. In reality, they will be looking for other, unrelated
items that don't "look right." If you have the meeting in your office, they
have every right to look through your files for the same things.

In other words, the smart thing to do is only give the IRS access to
information regarding the items they are auditing you for. They will let
you know the reason for the audit beforehand. This gives you the knowledge
you need to protect yourself and your business from audit nightmares.