The coronavirus pandemic has taken a toll on the country, with the tax industry also impacted immensely. The tax filing deadline for this tax season 2020 has been extended from 15th April to 15th July.
Earlier, the IRS had deferred the payment of taxes up to 90 days. The individuals can defer payments up to 1 million while the businesses can defer up to 10 million.
According to the IRS, there have been a total of 67,998,00 returns filed as of 6th March 2020. However, if you are among the ones who haven’t filed their taxes yet, there are certain measures that you can adopt to file your taxes accurately.
Although the deadline has been extended, you never know how much time you have on your hands. Hence, it is time to re-evaluate your finances to avoid being audited by the IRS.
Here are some of the steps you can take to ensure that the IRS does not audit your accounts.
Table of Contents
1. Avoid Mistakes
During the tax season, one of the major mistakes that the tax preparers and businesses make is procrastinating from filing taxes. For most entrepreneurs, filing taxes is an after-thought as they feel there is still time for the deadline. However, filing taxes at the last moment leads to a panic situation.
You, as a taxpayer, should nor make this mistake. You should try to file your taxes as early as possible, preferably two to three weeks before the deadline. Also, the preparation of the tax documents should be done much earlier than that to avoid the last-minute hurries.
2. E- file Your Taxes
Gone are the days of filing the taxes manually. According to the IRS, the total count for e-filing was about 138 million out of a total of about 155 million returns (about 88.7 percent). Hence, it shows that a majority of taxpayers have already moved to e-filing.
However, if you have still not started filing taxes digitally, it is recommended that you start this tax season. E-filing not only helps in reducing errors, but it also enables in keeping electronic records of tax forms. Hence, it helps in avoiding an IRS audit as the chances of any discrepancy in the data get minimized.
3. Take Help of Professionals
For a small business owner, filing taxes can be confusing. This is because of the ever-changing tax reforms and the introduction of new tax laws by the IRS. For instance, the IRS recently announced that the Highly-Deductible Health Plans (HDHPs) can cover the costs incurred due to Coronavirus (COVID-19) testing and treatment.
Hence, it always better to make use of the expertise of a tax professional. It is the job of tax professionals to keep track of all the tax changes, and they are less likely to miss any regulations for filing. It is unlikely for the IRS to audit you if the tax filing is thorough.
4. Choose Your Accounting Method
Every company chooses between the two main methods of accounting for their business, namely cash or accrual. Accrual-based accounting implies when the company records finances at the time of a transaction being done. However, in cash-based accounting, the transaction is recorded when the money actually exchanges hand.
You can use any accounting method for your business. However, the problem lies in not committing to a single method all year round. This could cause confusion in tax filing, and the IRS could find it a bit suspicious, leading to an audit.
5. Avoid Rounding Off Numbers
One unexpected mistake that the businesses make all year long is rounding off expenses in their financial records. For instance, if a payment of $978 is made for a service, they tend to round it off to 1000. Although this might not seem a significant deviation, the IRS might recognize the trend and find it suspicious.
Hence, you should keep track of the account payables and receivable throughout the year and avoid rounding the numbers at the time of tax filing. This will increase your chances of avoiding an audit by the IRS.
6. Adopt Technology
With the new and improved tax software solutions available in the market, a majority of tax businesses are filing taxes on the digital platform. These tax software solutions streamline your tax process and make available a variety of tax forms. Moreover, technologies like cloud computing offer a common workplace for you and your tax preparer.
By using these tools for your tax process, you minimize the chances of missing out a critical detail like a tax-deductible expense. Moreover, with tax software hosted on the cloud, the chances of error also get reduced as you can collaborate with your tax preparer to share files and personal details easily. Accurate tax filing means the IRS has no reason for an audit.
Don’t Worry About A Tax Audit
According to CNBC, there was a significant dip in tax audits by the IRS in 2019. However, it is also observed that the high-income groups get audited than the middle-income group.
For businesses, if your books are accurate and up-to-date, you, too, do not need to worry about the audit. Even if there is an audit, you should make sure that you account for all your transactions, and you don’t need to worry at all.
Are there more ways to avoid an IRS audit? Please share in the comments section.