How to Survive a Commercial Property Tax Audit

Getting audited is any property owner or taxpayer’s worst nightmare. However, the sad fact is that many people either make mistakes on their commercial property taxes and wind up in the government’s hot seat.

Here’s a closer look at why a commercial property tax audit would occur and what property owners can do to try and move the process into a direction that leads to the least painful outcome.

How Serious is an Audit?

Most tax audits are based on returns that have been filed over the last three years. Many people believe that a tax audit is the shadow of impending doom and that they could likely be sent to jail for glaring tax errors.

While tax errors may result in a substantial bill from an audit, only a convicted offense of blatant tax evasion will lead to a prison sentence.

What Should You Do if You End Up Audited?

Although tax audits are a stressful situation that can end up costing a commercial property owner thousands of dollars, there are several steps a person in the middle of an audit can take to help improve their odds of paying less money at the end of the process.

Know What Triggers an Audit

There are several items in your taxes that could lead to an audit. Some of the most common reasons behind this include the following:

  • Improperly following Texas sales and use tax laws
  • Extremely high or extremely low incomes
  • Failure to report income
  • Extraordinarily large spending or deposits (Over $10,000)
  • Self-employment
  • Itemized deductions that take up a significant portion of your income
  • (Sometimes) Business property tax appeals

Thoroughly Review How Your Business Has Approached Taxes in the Last 3 Years

The first step to take if you feel like you have an audit headed your way is to thoroughly review and understand how your business operates.

  • Does your business write-off assets once it knows the IRS no longer deems them useful?
  • Does your business over-report assets that are no longer on your property but have still not depreciated?
  • Does your business keep disposed assets in their books, thinking that there will be no tax implications?

All of these questions are important because answering “yes” to them clearly points to why the IRS may select you for an audit.

Understand What Your Audit Requires

When the government conducts a business property tax audit, several documents and business information are required of the property owner. Some of the most important pieces of evidence you can produce to build up defense during an audit include the following:

  • Financial Statements
  • Income Tax Returns
  • A list of any leased equipment and copies of your lease agreements
  • Your business’ accounting policy manual
  • Inventory balances
  • Supply balances

This is just the tip of the iceberg when it comes to successfully defending yourself against those conducting your audit. Don’t worry about missing anything; Your auditors will provide you with a comprehensive list of what they’ll need to come to the right conclusion. 

As a further tip:

Always remain in constant communication with your auditors and stay on top of the direction your audit is headed. If you realize that you may find yourself with a large bill at the end of the process, it may be time to look into further professional help.

Hire an Experienced Property Tax Consultant

Your best defense during a business property tax audit is to hire a property tax consultant that specializes in this area of their field. At The Hegwood Group, we specialize in client representation throughout all aspects of the audit process.

Trust us to help build up your defense, work closely with auditors, and guarantee an accurate final assessment.

Get to the Other Side of Your Property Tax Audit With The Hegwood Group

If you know you may have an audit headed your way or have already received notice of an audit of your commercial property taxes, the property tax consultants of The Hegwood Group can help.

Trust us to do everything in our power to build a solid defense that reduces your audit liability. Contact us today to learn more about our services and to schedule your free consultation with a member of our team.

In-depth guide to property taxes in Texas