The IRS recently issued a report about its audits of S-corporations. The report found that 62% of the time, the audit resulted in no changes for the taxpayer. However, when audit adjustments were made, the service recommended changes amounting to an additional $5.7 billion in taxes from 2007 to 2011 or approximately $105,534 per audit. The report goes on to say that the large dollar amount of audit changes, coupled with the overall increase in the popularity of S-corps, will lead to more S-corp audits in the future.

What does this mean for you?

No matter what type of entity you have, there is always a chance you could be audited. The best audit defense is to have your financial books and records up to date and in good shape. Additional documentation, such as bank and credit card statements, mileage logs, and receipts (especially from company meals), is also important to have. It is also good to have a CPA review your records and make recommendations as you go along. Your CPA will have insight into potential trouble areas and should be able to help you avoid problems and ensure you have adequate documentation should the IRS audit your return.

If the IRS sends you an audit notice, it’s not the end of the world. Remember, 62% of the time the S-corps they audited had no changes. You have the right, as a taxpayer, to respond to the IRS and challenge any audit changes they propose. If you’ve kept up your books all along, they might not propose any changes at all.