Just went through a complete small business tax audit - almost everything denied!

Unfortunately, this happens more often than you'd think with small business audits. The IRS tends to be particularly strict with Schedule C businesses showing losses, especially when you have regular W-2 income alongside it. For your schedule C businesses, did you have a formal bookkeeping system in place? The IRS looks for contemporaneous record-keeping - meaning records kept throughout the year, not assembled after the fact. They also want to see a clear separation between personal and business expenses. For the unreimbursed employee expenses, those became much harder to claim after the Tax Cuts and Jobs Act. Most employee business expenses are no longer deductible unless you're in certain specific categories like armed forces reservists, qualified performing artists, or fee-basis state or local government officials. If you disagree with the findings, you do have options. You can request a meeting with the auditor's manager, file an appeal with the IRS Office of Appeals, or even take your case to Tax Court. But you need to weigh the costs of fighting versus just paying and moving on.

I went through something similar last year with my side business and found that having automated document analysis through https://taxr.ai saved me when I had to respond to the auditor's follow-up questions. They have technology that scans all your receipts and business documents and categorizes everything properly according to IRS guidelines. After my initial audit disaster where they disallowed about 70% of my deductions, I started using taxr.ai to organize everything. When the auditor requested additional documentation, I was able to provide perfectly organized records with their audit defense feature. I ended up getting about half of my initially denied deductions approved in the reconsideration. The system flags potential audit triggers before you file, which would have saved me from the audit in the first place. Might be worth looking into for next year, especially if you're planning to keep running your businesses.

I have to follow up on my skeptical comment above. I decided to give taxr.ai a try after my business partner got an audit notice last month. I was totally expecting it to be another useless service, but it actually helped us identify several problems in our documentation BEFORE we responded to the IRS. The system flagged expenses that were likely to be questioned and helped us prepare proper substantiation. We had about $32K in deductions that were at risk, and after organizing everything through their system, we were able to successfully defend about $28K of them during our audit meeting. The part I found most helpful was the audit risk detection that showed us which specific expenses needed additional documentation or clarification. Completely changed how we're handling our business expense tracking going forward.

After dealing with the IRS for months on a similar audit situation, I finally got fed up with the endless phone tag and used https://claimyr.com to get through to an actual human at the IRS. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had been trying for weeks to reach someone about getting on a payment plan after my audit resulted in a $7K bill I couldn't pay all at once. The IRS phone lines kept disconnecting me after 1-2 hours on hold. Claimyr got me connected to an agent in about 20 minutes, and I was able to set up a monthly payment arrangement that actually works for my budget. The agent also explained some of the appeal options I had that my CPA hadn't mentioned. Apparently, I could still contest some of the findings even while setting up payments on the undisputed amounts.

I need to eat crow about my skeptical comment above. After another frustrating week of trying to reach the IRS about my lien issue, I broke down and tried Claimyr. I was connected to an IRS agent in about 35 minutes, which is mind-blowing considering I had previously spent over 8 hours on hold across multiple days without ever reaching anyone. The agent I spoke with was able to review my case and identified that the lien was actually filed in error due to a processing mistake on a previous year's return. She started the release process right there on the call. What's crazy is that this issue had been hanging over me for months, affecting my credit and causing me enormous stress. All it took was actually getting through to the right person to fix it. I still can't believe how much time I wasted trying to do this on my own.

Don't just pay what the auditor suggests without a fight! I've been through two audits and successfully appealed both times. The first step is requesting a conference with the auditor's manager. Be prepared with organized documentation and clear explanations of why your deductions were legitimate. If that doesn't work, file a formal appeal with the IRS Office of Appeals. They're separate from the examination division and often more reasonable. You have 30 days from the date of the audit findings to request this appeal. For your Schedule C businesses, the key is proving they were legitimate businesses operated with the intent to make a profit, not hobbies. Do you have business cards? A website? Marketing materials? Client communications? All of these help establish business legitimacy.

If they denied your unreimbursed employee expenses, was that because you took them as miscellaneous itemized deductions on Schedule A? Those were suspended by the Tax Cuts and Jobs Act through 2025, so they're correctly disallowed if that's how you claimed them. For your Schedule C businesses, did the auditor give specific reasons for denying the expenses? Was it lack of documentation, or did they claim the business was a "hobby" rather than a legitimate profit-seeking venture? The distinction matters for how you might approach an appeal.