Getting information to help you prepare your taxes or prepare for an audit is now easier than ever with two services from the Internal Revenue Service. One of the sources is the IRS Web site at www.irs.gov and the other source is the IRS Superintendent of Documents. The IRS Web site features most of the guides needed by individuals or small business owners but the Superintendent can provide any guides not easily obtained online.
The Web site for the IRS contains instruction manuals that auditors use to guide them in their work. This useful information helps to level the playing field between the filer and the auditor. Here are some of the specific documents you may want to look up to help you better prepare.
There are specific audit guides that an IRS auditor uses for a variety of businesses. You may want to get the particular guide for your business if it is available. There are dozens of these auditor guides, or Market Segment Specialization Program Audit Technique Guides. Some of the guides available include Artists and Art Galleries, Commercial Banking, Furniture Manufacturing, Retail Liquor Industry and there are many more.
Many of the guides focus on businesses that handle a lot of cash. For example, the guide on bed-and breakfasts lists some of the most common sources of unreported income. The guide reports these sources could be referral fees paid by local restaurants, fees for shuttling guests to nearby tourist attractions and, of course, tips. These services are usually paid in cash and the IRS wants to make sure the business owner does not simply pocket the money. An auditor will want to see a record of that income or he may want to analyze your bank deposits to see if you have unreported income. Most likely, if you show where the numbers appear on your tax return and hand over a list of cash deposits the auditor will lose interest.
The guides also show the small business owner some insight into what an auditor looks for in determining whether or not you are using your business to pay for and deduct personal expenses. The bed-and breakfast guide, for example, suggests the auditor check out who pays for the family groceries, you or your business. A good idea is to keep two checkbooks and write two separate checks for personal and business groceries.
Auditors will often focus on bars and restaurants because of the amount of cash they handle. Of particular interest is the markup on food and drinks. The IRS guide says, for example, that a margarita should only cost 57 cents to manufacture, yet, retailers usually charge six to ten times that amount to customers. The auditor may simply tally up the costs of goods sold and multiply it by your markup and expect that income figure to be the one reported on your tax return. Either be sure these numbers are a match or be ready with a good explanation of why they do not.
These guides show the auditors the standards to determine how much a taxpayer can afford to pay when settling an overdue tax bill. They also show auditors guidelines for dealing with businesses that use independent contractors. How the IRS conducts undercover operations is one of many other topics discussed in the IRS manuals online.
· Local IRS "Problem Solving Days"
The tax law itself or Internal Revenue Code is also available online at the IRS Web site. You can use the Web site to keep better informed or to get or make suggestions. For the most expedient way to view the site use the "text only" version and if you get confused on where to navigate in the site use the "Site Tree". Whether you are filing yourself or using a professional, the IRS Web site can provide important and useful information.
If you need to obtain an auditor guide for your business that is not listed, or if you need a written copy of a guide or manual, you can call the IRS Superintendent of Documents at (202) 512-1800.