Oh-NO - A Business Audit

"The best preparation for tomorrow is doing your best today." - H. Jackson Brown Jr.

The issue we're tackling today might overwhelm you because of what it means for your business.

Before I dive into some ways you can prepare for a business audit, allow for a quick refresher:

IRS audits are often not initiated at random. The IRS will likely audit businesses with glaring errors from business taxes filed the year before (i.e. when they sense something is up). These tax audits cover several areas, such as employment and income tax. They are comprehensive and not something to take lightly.

We recommend a professional service should an audit happen.

What Happens In a Business Audit?

But if you choose to face the audit yourself, here are some ways to prepare.

1. The most essential is that any third-party income and reports agree with your records. This meticulous record-keeping is your key to security and control. It's crucial to maintain all such expenses throughout the year, ensuring a clear and accurate financial trail.

2. Fill out all the correct forms. Is the audit you're going through a Correspondence audit? Office audit? Field Audit? Each type of audit will dictate which forms you need to fill out.

3. Tax auditors will first request your checking, savings, and investment account information. Make sure you have all the deposit records from the previous year on hand.

4. Is your business bank account free of irregularities? Good. The random, significant expenses will only hurt you in the long run and give the IRS something to call into question if it doesn't line up with your business' trend lines. If you have those outliers, you must provide the necessary documentation to back those purchases.

Side Note: Keep at least two bank accounts, one for personal and one for business. DO NOT CO-MINGLE FUNDS! This responsible and organized approach will keep your business and personal accounts separate throughout the audit, demonstrating your commitment to financial transparency.

5. Measure twice, cut once. It's vital to double- and triple-check your information when filling out necessary audit forms. This diligent approach, coupled with getting a second (and maybe third) pair of eyes from someone else on your leadership team, will reassure you that your numbers are accurate. FOR INSTANCE, balancing your total deductions with your income is essential. Extensive deductions adding up to a significant portion of your income will sound audit alarms for the IRS. Get those numbers right with attention to detail.

Bottom Line

· Keep your bookkeeping up to date.

· Reconcile your business bank account monthly.

· Your goal is to prevent any "audit fear" in the first place.

BE THE ROAR, not the echo®

Warmly, Janet, the Tax Wizard