The Side Dish

Finance to Table Education for Operating Your Restaurant

Tips to prepare for an IRS audit

Every tax return filed with the Internal Revenue Service has the potential to be audited by the IRS. Normally, returns are selected randomly through computer screening or related examinations. This IRS audit is intended to determine whether your income, deductions and any payments or refunds are correct.

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Here are a few tips for your restaurant to prepare for an IRS audit:

  • Carefully read the letter from the IRS regarding the audit to ensure you understand what type of audit they will be conducting, and how you will communicate with the IRS agent.
  • Review the information document request to see what documents you will need to provide.
  • Print hard copies of your tax returns for the year in question and four years surrounding that year to provide examples of the same expense in the prior year and to prove your history of being a creditable taxpayer.
  • Gather additional documents including all receipts from any expenses and deductions taken on your tax return. Some examples are the following:
    • Documents associated with payroll reports filed every quarter and W-2’s for each employee.
    • Tip credit reports related to the credit taken on Form 8846 claiming a credit for social and Medicare taxes paid or incurred by the employer on certain employees’ tips.
    • Documents for the Work Opportunity Tax Credit if applicable for your restaurant. This credit is available for employers who are hiring individuals from certain target groups that have consistently faced significant barriers to employment.
    • Receipts providing support for any new equipment purchased or major repairs completed during the year.
    • All bank statements providing proof of income received and expenses paid throughout the year.
  • Before you meet with the auditor, go through your profit and loss statements, tax returns, deductions, and receipts to make sure all items match up.

Receiving an IRS audit letter can be intimating don’t be hesitant to contact your tax professional at Henry+Horne with any questions or concerns.

Meghan Metzger, MSA