If you are an entrepreneur, there’s a pretty good chance you’ll get some type of IRS notice. After all, the agency generally presumes that you've become too aggressive with deductions for travel, entertainment and meals. What's more, the IRS thinks your recordkeeping is probably not so good either, and you may be failing to report some of your income.
So what do you do when you get that awful notice?
Well, first of all, don't have a panic attack. The fact is that the IRS has a myriad of different types of notices, which often can be easily handled through the mail. For example, there may be an innocent mistake on your tax return, such as the wrong amount from a Form 1099-MISC, which reports income from customers for services provided.
Let’s face it, the tax preparation process is far from fun or easy. As a result, it’s common for there to be flubs.
Yet the IRS is not immune from errors as well so if you disagree with a notice, you can respond in writing. This means providing an articulate explanation of your position, supported by any documentation like checks or receipts. You'll also need to include the tear-off portion of the notice, which is at the bottom of the letter. Make sure you mail this to the address that is listed on the top-left corner of the notice, and do not miss the deadline. For the most part, expect a response in a month or so.
Make sure to keep copies of your documentation and your notice. The IRS is a massive bureaucracy, which means things can get lost.
Also, if you get an email, text message, social media post or call from the IRS, be wary. This may actually be a tax scam because the IRS sends notices through the mail.
Unfortunately, there are some IRS notices that are much more serious. They involve an audit that may be at a local IRS office or perhaps at your home or business. With an audit, the focus is on an examination of your tax return to see if you properly reported income as well as claimed legitimate deductions or credits. The process can be stressful and time-consuming. And the costs can be onerous, in terms of the tax owed, interest charged and penalties.
This is why it’s a good idea to get an expert to help you, such as a CPA, enrolled agent or an attorney. These professionals not only understand the complicated laws and rules but have experience with the IRS process, such as appeals and negotiations.
Despite all this, it is still understandable for entrepreneurs to be downright scared of any IRS notice. And while it's tempting to ignore, this is really the worst thing you can do. The IRS has tremendous powers, such as to garnish your wages, take money out of your bank accounts, question your customers, put liens on your property and so on.
In other words, if you get an IRS notice, it’s something that needs to be made a priority. Missing deadlines only worsens the situation and will likely mean you will pay even more and perhaps even lose your rights to an appeal.