What do I have to prove if the IRS decides to question my business tax filings?

If you are one of the unlucky business owners selected for an audit or examination by the IRS, it is important that you be able to support the claims you have made in your tax filings. If you are unable to do so, you may be subject to various fees and penalties. Taxpayers are required to meet a certain burden of proof when it comes to the entries, deductions, and statements made on tax filings or risk having their previous returns overturned, amended, or rejected.

3 Documents That Substantiate Claims Made on a Tax Return

In order to legally make deductions on your tax return, you must be able to prove certain elements of your expenses. Most taxpayers meet this burden of proof by keeping the information and receipts relating to the expenses. Good recordkeeping requires that business owners keep various forms of documentation in order to meet this burden of proof. The following are three examples of documentation that serves as evidence of your expenses:

  1. Receipts
  2. Canceled checks
  3. Bills

If you are reporting travel, entertainment, gifts, or auto expenses, additional evidence is required.

Meeting your burden of proof typically becomes an issue when you or your business is selected for an audit. If you are chosen to undergo this process, it is crucial to have an experienced attorney in your corner. Your lawyer will help you understand what the IRS is looking for through the audit process as well as guide you through the process in order to maximize your chances for a successful outcome. In addition, arming yourself with knowledge about the audit process can help get you started. We encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems, for more information.