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Hire a CPA to Avoid Tax Audits

Updated: Jul 20

A certified public accountant or CPA helps a business owner learn about various tax deductions that reduce the latter's tax burden. A CPA can also help a business owner organize his financial records so that tax preparation becomes easier at the end of the year.


Besides, a CPA performs another function which is beneficial for a small business. Hiring a certified accountant helps small businesses avoid tax audits.


If you have been in business for the last few years, you must be familiar with the complexity involved in income tax preparations for a business. This makes it quite difficult to avoid mistakes while filing the tax returns. So, here are some good reasons that should inspire every small business owner to hire a CPA and avoid the possibility of triggering a tax audit:


Experience in Tax Return Filing

If you are able to find an experienced CPA, you can take advantage of his years of experience with filing tax returns. An experienced accountant must have been serving other small businesses in tax return preparations.


As such, he is expected to be familiar with the pitfalls and problematic areas that ultimately lead to tax audits. For this, make sure that you hire a CPA after learning about his experience in the industry.


Efficient Accounting

Maintaining business accounts is important to avoid tax audits. If you have maintained day to day accounts for the whole year, it helps you report your full income while filing tax returns. However, small business owners are often negligent toward regular accounts maintenance. A CPA can help you with this by offering two important sets of services - bookkeeping and financial accounting.


If you hire a CPA in the beginning of a fiscal year, he helps you maintain the financial records of your business right from the beginning. You must know the fact that a CPA can handle bookkeeping as well as financial accounting. Everything from payroll to business cash flow is streamlined by a certified accountant.


When it is the time for tax preparations to be done, a CPA will have a clear understanding of your business's financial picture. With very financial record in its place, the possibility of tax audits can be thwarted


Advice on Company Status

An experienced CPA has the knowledge about what should be the status of a business to enjoy tax benefits without indulging in things that can trigger a tax audit. A CPA should advise you on whether your business should have the status of a corporation or an LLC.


The CPA might also advise you on the benefits of a partnership. A CPA helps you handle your financial dealings in a way so that they comply with the standards set by the IRS, choose whatever legal status.


Tax Documentation

Most small business owners find it difficult to prepare the documents required for income tax filing. It is indeed more complex to document business tax returns than individual tax returns. A CPA helps by making it simple to prepare tax return documents in the most accurate manner. The documents related to your financial dealings throughout the year are maintained and utilized by the CPA to prepare accurate tax returns at the end of the year.


Legal Deductions

A business owner must be familiar with the tax deductions that are legal and those, which are not. A CPA has in-depth knowledge about various deductions that can reduce the burden of tax for a small business owner. At the same time, a CPA has information about deductions that are invalid and should not be included in the tax return documents.


Any attempt to gain benefits out of invalid tax deductions can lead to the issuing of tax audit against your business. Besides, a CPA helps a business owner maintain all required documentary proofs that support the deductions included in the tax returns.


Credibility of CPA

The certified public accountants enjoy a legal and reputed status in the eyes of the IRS. Hiring a CPA over other tax preparers is preferred as the former has a legal standing in the industry. This ultimately lends credibility to the business that hires the services of a CPA. In the eyes of the IRS, the business hiring the services of a CPA is less likely to indulge in fraud or mistakes that lead to tax audits.


The tax return forms contain a section, which is to be signed by a tax preparer. If you have a CPA as the tax preparer, it reflects in the tax return forms, and the IRS has a reason to consider your tax returns to be free of errors.


Tax audits are frustrating situations for a business owner and can lead to huge penalties. So, you must choose an experienced and reputed CPA who can help you with the various stages of tax preparations so that the chances of a tax audit can be easily avoided.


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By Charlie Muller


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