Running a business in San Diego is no small feat. Between managing payroll, staying compliant with state and federal laws, and keeping up with operations, few owners have time to dig into the complexities of tax codes or employment law. But when a letter arrives from a government agency, whether it’s the IRS, EDD, Franchise Tax Board (FTB), CSLB, or CBP, it can bring stress, confusion, and uncertainty.
The good news? Most audits can be managed successfully with the right approach. Here are five things every San Diego business owner should know to be prepared, and protected.
1. Don’t Ignore the Letter
Whether it’s a notice from the EDD questioning your use of independent contractors or an IRS audit request, the worst thing you can do is ignore it. These letters often have tight deadlines, and missing them can escalate your case quickly. Open it, read it thoroughly, and note the response date.
2. Understand What They’re Looking For
Each agency has a different focus.
- EDD wants to know if your 1099 contractors should have been W-2 employees.
- IRS might review payroll tax filings or income reporting.
- FTB could be reconciling business deductions or reported revenue.
- CBP or CSLB audits often relate to tariff classifications or contractor licensing and bonding.
Knowing what triggered the audit helps you respond clearly and accurately.
3. Stay Organized, and Honest
Auditors request documentation like 1099s, payroll records, bank statements, or client invoices. Having those records ready, and accurate, makes the process smoother. Trying to “clean up” numbers after the fact can raise red flags. If you discover mistakes, it’s better to be upfront and prepared with an explanation.
4. Be Cautious About What You Say
It’s natural to want to explain yourself, but it’s important not to guess or speculate. Stick to facts. In many cases, it’s best to have a professional, like a tax attorney, communicate with the agency on your behalf. This helps avoid misstatements that can complicate the situation.
5. Don’t Try to Navigate It Alone
If your audit involves more than a missing form or small error, bring in support early. A seasoned tax attorney can help protect your rights, reduce penalties, and ensure you’re not volunteering unnecessary information. You don’t need to face government agencies alone.
A Final Word
At Milikowsky Tax Law, we’ve worked with hundreds of San Diego business owners, from startups to seasoned contractors, through EDD, IRS, FTB, and CSLB audits. We believe preparation is the best defense, and if an audit does come, having the right team on your side makes all the difference.
If you’ve received an audit letter, or just want to be prepared, give us a call. We’re here to help.
