Tips for Preventing Tax Audits

Whether your business is more likely to be an IRS target, experts say you can still reduce your risk of an audit by:

1. Answering all questions on your tax return;
2. Using exact numbers, not nice round numbers (use $4,892.18, not $5,000.00);
3. Double-checking your math for errors;
4. Preparing your report neatly and accurately;
5. Attaching explanations for any items that may appear questionable.

If you do get audited, the burden of proof lies with you (see Preparing for a Tax Audit for more information). You'll need to substantiate and account for all deposits, and you'll have to prove that all your expenses — such as travel, meal, and entertainment costs — were necessary for your business. Always keep logs of your business activities, including detailed dates and locations, exact amounts and descriptions for expenses, names of the people with whom you did business, and the topics you discussed. In addition, save applicable documents, such as receipts, bank statements, and cancelled checks.