For most small business owners, finding a letter in the mail from the IRS can suddenly unleash a flood of emotions, from fear to anger to guilt to helplessness, and that's even before you even open the envelope. And among all the possible scenarios that can flash through your mind, discovering that you are about to be - gulp - audited, is for most small business owners, far and away the worst. Instead of panicking when the IRS comes calling, arm yourself with the information you need to get through the process:

DO:

  • Keep ALL of your small business's receipts back seven years.

  • Let the IRS know whenever you move. (Use IRS Form 8822.) If you don't, an IRS notice could go to your old address and an audit could begin without your being aware of it.

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  • Wait a couple of weeks after receiving your audit notice to call the IRS and schedule an appointment. And then pick a future date that gives you as much time as possible to prepare.

  • Organize your papers (and thoughts) ahead of time so you can quickly answer questions.

  • Make copies of all correspondence you send the IRS.

  • Avoid giving auditors your original documents at all costs. Instead, ask that he either take notes or make a photocopy of them.

  • Treat the auditor politely and professionally, and expect the same from them. If an auditor is rude or disrespectful, you have the right to speak to his or her supervisor.

  • Consider hiring a tax professional as a consultant.

  • Have reasonable expectations. Nearly 90 percent of audits conclude with a higher tax bill, so an attitude aimed at simply minimizing your financial losses is often the best.

DON'T:

  • Fail to file a tax return. Ordinarily, the IRS can only examine returns going back three years. But if you don't file, the statute of limitations on that year never expires.

  • Estimate. Round numbers on your return tell the IRS you're not really tracking your cash

  • Forget to print out receipts or order confirmations for all your business's online purchases.

  • Let an auditor come into your business and freely interact with your employees and customers.

  • Volunteer information or answer questions that the auditor hasn't asked.

  • Be a pushover. Ask the auditor questions during the audit and insist that he explain the legal reasons behind any problems that he's found.

  • Tape-record the audit. Even though you have the right, this often causes the auditor to be even more stringent and, therefore, most experts caution against it.

  • File another tax return during an audit. Instead request an extension. If you do file during an audit, the IRS could expand its scope to include it.

  • Offer anything to the auditor that could even remotely be considered a bribe

Taking these steps, along with a talk with your tax advisor or accountant should aleviate some of the pressure should the IRS come knocking at your door.

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