AUC:This is part three of an interview with H. A. Beasley, founder and director of H.A. Beasley & Company, PC, an accounting firm in Murfreesboro, Tennessee and ICS Law Group, PC.
Question: Let’s shift focus back to the IRS for a second. Is there something that a taxpayer can do to minimize the chances of an IRS audit?
H.A. Beasley: Our clients and friends seem to think that filing after April 15th increases the chance that they will be audited. If you file proper extensions, I’m completely convinced that it does not increase your chance of an audit. In fact, there are those out there that are publishing tax advice that say that the contrary is true, that when you file an extension you might actually reduce the chance of an IRS audit.
We believe we can help clients minimize the risk of an audit first of all by choosing the best form of business entity depending on the type of business. There tends to be market differences in the way the IRS choose to audit for different kinds of businesses.
So whether a person operates as a sole proprietor, on one hand, or perhaps they incorporate or form an LLC on the other hand, can tend to reduce the chance of an audit.
They need to properly file all of the required information returns such as IRS Forms 1099 and W-2. And they need to have someone that knows review their tax files to make sure they don’t look wrong. Sometimes just the way the information was put on the forms can raise a flag.
Question: What can a CPA firm like yours do to help business owners make sure their taxes are right?
HA: One of the first things we find beneficial is to make sure that all of the local, state and federal taxes requirements are being acknowledged and acted on. Certain special forms may be required for those in the trucking business, for example, and the forms might be different for a food, service or retail business.
Another way we work with small business owners is that we arrange to have at least one other tax meeting in a year—not at tax time–to help the taxpayer.
During the tax preparation process in the spring, we also try to meet with each client, if they want to, and do our first shot at the tax plan for the year while we are doing last years return. We’ll identify, for example, whether estimated taxes need to be paid or will there be a more effective way to deal with tax liability.
After that first plan is put in place in the spring, or when we do the taxes, sometime before Christmas, probably around Thanksgiving, we’ll have the second meeting. Without a good spring meeting and follow-up late fall meeting, it’s very easy to pay too much tax unnecessarily just by not making the best decisions by the end of the tax year.
Because the clients have some choices with regard to how business cash flow and taxes are managed, some of our larger clients may meet with us three, four times or more a year. But for the vast majority, for hundreds of our clients, the twice a year cycle works out pretty well. There may be an occasional phone call when they are making a business decision that has a potential of tax consequences, just a quick call to determine the best way to handle that business transaction.
Stay tuned for next Thursday as we share Part Three of the interview with H.A. Beasley.