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Tax audits can strike fear into the heart of even the most diligent small business owner. Whether you run a boutique in Cherry Hill, a construction company in Deptford, or a family-owned restaurant in Turnersville, the thought of combing through records under the watchful eye of the IRS or New Jersey Division of Taxation can feel overwhelming. But here’s the good news: with the right approach, audits don’t have to be stressful.

Most audits are routine checks, not accusations of wrongdoing. This guide is designed to empower South Jersey business owners with the knowledge and strategies needed to handle tax audits confidently. By the end, you’ll understand how audits work, how to prepare for one, and how to avoid them in the future—all while learning how TMD Accounting can support you every step of the way.

What Is a Tax Audit and Why Does It Happen?

Breaking Down Tax Audits

A tax audit is an official examination of your financial records to ensure accuracy and compliance with tax laws. While they sound intimidating, audits are often triggered by discrepancies or random selection. Knowing what to expect can reduce stress significantly.

Types of Tax Audits

1. Correspondence Audit: Handled via mail for minor issues like missing documentation.
2. Office Audit: Conducted at an IRS or state office, requiring you to bring specific documents.
3. Field Audit: The most comprehensive, where auditors visit your business to review records onsite.

Common Triggers for Tax Audits

• Errors or Discrepancies: Math errors or inconsistencies in reported income and expenses.
• High Deductions: Claiming deductions that are unusually large for your industry.
• Unreported Income: Especially from cash transactions.
• Random Selection: Sometimes audits are simply the result of a randomized process.

💡 Did You Know? According to the IRS, less than 1% of individual and small business tax returns are audited annually, but higher incomes and certain deductions increase your likelihood.

 

How to Prepare for a Tax Audit

1. Keep Accurate and Organized Records

Strong record-keeping is your best defense in an audit. Essential documents include:

• Tax returns (keep at least 3–7 years).
• Receipts, invoices, and expense reports.
• Payroll records.
• Bank statements.

💡 Pro Tip: Use accounting software like QuickBooks to organize and store records digitally for easy retrieval.

2. Understand the Scope of the Audit

Carefully review the audit notice to determine what the IRS or New Jersey Division of Taxation wants to examine. Focus on providing exactly what they ask for—nothing more, nothing less.

3. Seek Professional Guidance

Navigating an audit without expertise can be risky. A CPA or accountant experienced in audit representation can:

• Explain what the auditor is looking for.
• Ensure you submit accurate information.
• Represent you in meetings, reducing the chance of miscommunication.

💡 Example: A Cherry Hill retailer partnered with TMD Accounting during an audit and avoided fines by promptly submitting accurate, well-organized records.

Navigating the Audit Process Step-by-Step

Step 1: Respond Promptly

• Review the audit notice carefully.
• Contact the auditor or tax authority to confirm deadlines and requirements.

Step 2: Gather and Submit Documents

• Collect all requested documents.
• Ensure everything is complete, accurate, and well-organized.
• Avoid offering unsolicited information that could raise additional questions.

Step 3: Attend the Audit

• Be concise and professional when answering questions.
• If unsure about a response, consult your accountant before replying.

Step 4: Review the Findings

After the audit, the auditor will present their findings. Possible outcomes include:

• No Change: The return is accepted as filed.
• Agreed Changes: You agree to adjustments and pay any additional taxes.
• Disputed Changes: You can appeal if you disagree.

💡 Case Study: A South Jersey contractor avoided penalties by working with TMD Accounting to challenge incorrect findings during a field audit.

Avoiding Tax Audits in the Future

1. File Accurate and Timely Returns

• Triple-check your returns for errors or inconsistencies.
• File on time to avoid unnecessary scrutiny.

2. Avoid Red Flags

• Be cautious with large deductions and ensure they’re supported by documentation.
• Avoid using round numbers on your returns; they suggest estimation rather than actual values.

3. Conduct Regular Reviews with a Professional Accountant

Schedule annual reviews with a CPA or tax professional to ensure your records are audit-ready.

💡 Pro Tip: Investing in tax planning services can help identify risk factors and minimize audit triggers.

Why Partnering with a Local Expert Matters

Local Knowledge Is Key

A South Jersey accountant understands the unique tax regulations and challenges in New Jersey, such as state sales tax compliance and local payroll taxes.

TMD Accounting: Your Trusted Partner

With nearly 40 years of experience serving South Jersey businesses, TMD Accounting provides:

• Audit representation and preparation services.
• Year-round tax planning and bookkeeping.
• Personalized advice tailored to your industry.

💡 Testimonial: “TMD Accounting saved my business from a major audit headache. They handled everything with professionalism and expertise!” – A Gloucester County Business Owner.

Conclusion

Tax audits don’t have to be daunting. By understanding the process, keeping accurate records, and seeking professional guidance, you can handle audits confidently while safeguarding your business.

If you’re facing a tax audit or want to prepare your business for the future, let TMD Accounting be your guide. Our team of experts specializes in helping South Jersey small businesses navigate tax compliance with ease.

Contact Us

📞 Call us: (856) 228-2205
📧 Email us: info@tmdaccounting.com
📍 Visit us: 202 Ganttown Road, Turnersville, NJ 08012
🌐 Contact Us: TMDAccounting.com