Why does the IRS Audit?

As a business owner or an entrepreneur, you are likely going to have to deal with an IRS audit. These semi-frequent pains in the neck can be a stressful situation to go through, especially if you try and run your business as cleanly and as clearly as possible. However, IRS audits are a common problem and will usually challenge you to a level that becomes very stressful to deal with – it’s why so many have a CPA fight their corner for them.

So, why does the IRS carry out audits? What do they get out of terrorizing people in this way?

• The most common reason is an error in your counting. Saying “sorry” won’t be enough; the IRS will now have to investigate you. Mistakes will happen but this is why an accountant is so important; they can help spot the problems up ahead and come up with a solution to fix them for you. This takes a bit of time, sure, but an accountant will usually find that an IRS audit has at least something to do with mistakes in the columns.
• Another common reason is a failure to include a Form 1099, or any additional income that you make. It’s an easy way to get an audit started and to begin the audit with plenty of suspicion against you. Make sure you don’t try and pull fast tricks by not including side income. Avoiding putting through a 1099 is a silly mistake and will get you an audit, and an audit that is desperate to find something against you.
• If you are in the position where you keep giving money to charity, too, you will likely see some questions being raised. If you have made large scale contributions to a charity then you are due tax deductions, and that’s not a problem. But when you start to report massively high charitable donations and you can’t prove those donations exist, or you have spiked massively since your last tax return, then you can expect some auditing to be coming your way.
• One of the most common reasons for an audit, too, is large losses in your Schedule C. If you are self-employed and you start making big losses, then you will probably find yourself under an audit. If you start filling out personal expenses as business losses (lots try it, and fail) then you will definitely need an accountant to try and explain this one. A business needs to show that it is legitimately staying afloat and when your accounts don’t pain that picture, expect an audit to arrive.

It’s a stressful situation and one that many people find quite off-putting. It’s also why you should get in a CPA to help avoid the problem from escalating. Many people don’t realize just how much trouble they are in when they get an audit – with an accountant, you’ll know.