Terry asks some excellent questions regarding an IRS audit and how to prepare:

Not that any one wants to go through an IRS audit, but I wonder if you could do 3 lists for all of us.

Q: What steps do we need to take to reduce a chance of an audit?
A: The most important thing you can do to reduce the change of an audit is to hire a really good tax preparer. This makes a huge difference on your chances of an audit. There are many options of how to report income and expenses A good tax preparer will look for ways to minimize your risk of audit.

The second thing you can do is build the right entity structure as part of your tax strategy. Some entities have a much greater likelihood of audit than others. A good tax strategist who also can prepare your tax returns can reduce your chances of an audit by as much as 90%.

Q: What forms and records do we need to have on hand so that the IRS auditor will not go on a fishing expedition through our records?
A: Good documentation is essential. The two most important records are a proper set of books through Quickbooks or some other complete software package and a completed corporate book for each of your entities.

Q: At an audit who should be there with us?
A: I strongly recommend that you have your CPA go to the audit without you. There is no reason for you to be there. Your CPA should be experienced in handling audits and auditors. And if the auditor asks your CPA a question, he/she can always say, "I don't know." You can't say that. This gives the CPA and you time to prepare an appropriate response to the auditor. This will help keep the auditor from going on the fishing expedition you were talking about earlier.

At ProVision, we take care of all of these aspects of an IRS audit for our clients. We have courses on bookkeeping and documentation (corporate formalities) at http://www.wealthstrategyuproducts.com and we routinely create tax strategies for our tax clients. For more information, contact us at cs@provisionwealth.com or call us at 866.467.5809.