OUTLINING WHAT OCCURS DURING A BUSINESS AUDIT
“The best preparation for tomorrow is doing your best today.” – H. Jackson Brown Jr.
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 a number of areas such as employment and income tax. They are comprehensive and not something to take lightly.
If you choose to face the audit yourself, here are some ways to prepare.
1. The most important item is that any third-party income and reports agree with your records. This is why it’s crucial to maintain all such expenses throughout the year.
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 on hand from the year prior.
4. Is your business bank account free of irregularities? Good. The random, large 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 do have those outliers, it’s important you prove the necessary documentation to back those purchases.
Side Note: it’s imperative you keep business and personal accounts separate throughout the duration of the audit.
5. Measure twice, cut once. It’s vital to double- and triple-check your information when filling out necessary audit forms. Get a second (and maybe third) pair of eyes from someone else on your leadership team when fulfilling each mathematical response. FOR INSTANCE, balancing your total deductions with your income is important. 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.
Our goal is to prevent any “audit fear”
Doesn’t that sound better than fearing the process?
Feel free to share this post with any of your business associates or clients you know who could benefit from this blog post
Warmly,
Janet Behm
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