What Happens if My Practice is Audited by the State?

cpa preparing for a state audit

State Audit

State Audit | As the owner of a dental practice, you have a lot on your mind, especially this time of year, with taxes due soon. You may breathe a sigh of relief once you do your taxes and file them with the state and IRS. But that relief may turn to fear when you find out that you’re being audited. Nobody – whether they are an individual or a business – wants to go through a state audit. If an auditor finds that you intentionally lied on your tax return in order to pay less money, you could be fined and even put in jail.

The good news is that fewer than 2% of businesses get audited, so it’s not a common occurrence. If you do get chosen for a state audit, you can survive it as long as you are well-prepared. Your goal is to convince the IRS that your dental practice submitted accurate records and that you were in fact entitled to the deductions you took. It’s not an easy task, but here are some tips that can help with a state audit.

Survival Tips for a State Audit

If you have been chosen for a state audit, the first thing you should do is postpone it. Ask for more time to get records in order. This helps you get everything you need so you don’t have to rush around.

State Audit - Doctor preparing paperwork

Make sure you gather all relevant records. If you’re missing a receipt, you can reconstruct it.

Don’t say too much. Just answer the questions you are asked. Do not volunteer any more information than absolutely necessary for the state audit.

Do your research. If you’re unsure about a tax law, read up on it. If you’re still not sure, consult with a tax expert.

Know your rights. The auditor must treat you with respect. Discuss any unfair behavior with the auditor’s manager. If the auditor mentions tax fraud, consult with a tax professional or lawyer. 

What Can You Expect?

More than likely, you will have to pay some sort of penalty or fine. Don’t expect a state audit to go in your favor. There are three main outcomes. 

  1. The auditor verifies that all information is correct. This means that everything on your tax return was accurate. There will be no change and you won’t owe any additional taxes. This is rare, but it can happen.
  2. The auditor finds a mistake, and you agree. If you acknowledge the mistakes that the found, you might have to pay additional taxes, as well as penalties and interest.
  3. The auditor finds a mistake, and you disagree. If you disagree with the auditor’s findings, you can or sue the IRS in court.

Learn More

Nobody wants to hear that they are being audited. They may feel scared and embarrassed. If your practice is being audited, the professionals at Ash Dental CPA can help you pass with flying colors. We offer audit defense and other services so you can focus on what matters most to you – your dental practice. To learn more, call (508) 458-6789 or fill out the online form