How to Avoid an IRS Tax Audit for Small Business

Tax season can make any small business owner nervous. You might find yourself wondering: Am I going to be audited this year?

The good news? IRS audits are rare — and the even better news is that you can lower your odds even more by following a few smart habits. Most audits happen because of simple errors or missing information, not random chance.

Here’s how to file your taxes confidently and stay off the IRS radar.

1. Always File Your Tax Return

Even if your business didn’t earn income or owe taxes, file a return anyway. Not filing raises more suspicion than filing with zero income. The IRS prefers an explanation over silence — so file every year, even if it’s just to show you owe nothing.

2. Avoid Shady or Unqualified Tax Preparers

A bad preparer can land you in hot water fast. Errors, shady deductions, or even fraud by unethical preparers can all trigger an audit.

Stick with a trusted professional who knows small business taxes and is transparent about their process. Remember — you are ultimately responsible for what’s filed.

3. Don’t Forget to Sign

It sounds simple, but unsigned returns are one of the easiest audit triggers. Avoid the mistake by using e-filing or reputable tax software that ensures nothing gets missed before submission.

4. Double-Check Your Math

Math errors instantly raise IRS red flags. Review your totals, compare forms, and make sure everything adds up. Even if an accountant prepares your taxes, always do a final check before sending them off.

5. Avoid Reporting Zero Income (If Possible)

Reporting zero or negative income looks suspicious — especially for self-employed individuals. If you truly made no profit, be ready to explain why and provide proper documentation. In past years, over 3% of zero-income returns were audited, compared to less than 1% of all others.

6. Be Careful with Schedule C

Schedule C (for self-employed income) is one of the most commonly audited forms. Errors or excessive deductions can attract attention. Use reliable software or work with a professional to ensure every entry aligns with your income and expenses.

7. Use Payroll Software for Accuracy

Payroll mistakes often trigger audits because even a small discrepancy in tax withholding can raise alarms. Payroll software reduces errors, automates tax calculations, and securely tracks records — saving time, money, and stress.

Other benefits include:

• Built-in security features

• Employee time tracking

• Expense management

• Easy record access

8. Report All Income — Even the Small Stuff

Don’t skip small or “insignificant” income, like dividends or interest. The IRS already gets reports of these payments from your bank or payer. If your numbers don’t match theirs, you’ll get flagged. Always include every dollar you earned.

9. Hire a Professional Accountant

This is one of the smartest moves you can make. A skilled accountant not only helps prevent errors but also ensures you take every legitimate deduction available. Their expertise can save you time, money, and the headache of dealing with the IRS later.

10. Keep Thorough, Organized Records

There’s no guaranteed way to prevent an audit — but if it ever happens, having your records ready makes the process painless.

Keep copies of:

• Receipts and invoices

• Bank and loan statements

• Tax prep notes

• Business contracts

• Payroll reports

• Property and asset documents

Cloud accounting tools make this easy with searchable records, built-in audit trails, and document storage.

Stay Audit-Free with Better Tax Habits

Good recordkeeping and honest reporting are your best audit defense. By avoiding common mistakes and staying organized, you’ll keep your business in good standing with the IRS year after year.

Want expert help preparing and protecting your business finances?
👉 Talk to Today CFO — we’ll help you file accurately, find hidden savings, and stay audit-free.