A tax audit helps small businesses to identify and rectify bookkeeping errors that may cause additional tax liabilities. If your business tax returns are accurate and complete, a tax audit only becomes a simple inconvenience for your business. The proper documentations and financial records may help you avoid a tax audit. The best way to prepare for an audit is to make sure that all your documents of tax returns are highly accurate.
If you get a mail from IRS (Internal Revenue Service) announcing your business is being reviewed, consider it as a golden opportunity to make all your financial documents clear and proper instead of getting panic.
What are the steps you have to taken before your audit?
Organize all your financial records properly for the audit meeting. You can explain how you could reach the figures that have shown in the tax returns and how do you prepare your tax returns. If you are not able to explain, thoroughly review the tax returns or seeks the help of a professional. A professional expert knows the tax audit procedures, how to explain your tax returns to the auditor, what kind of documents you need to submit and what kinds of supporting documents will help you present your tax returns.
If you are keeping all your business records- payroll records, income and expenses records, sales records, accounts payable and receivable, bank statements and receipts – accurately and neatly, you have not worried about your business tax audit. If you are not submitting the adequate data, the auditor may impose a penalty for your failure to submit proper records.
What are the documents to bring to an audit of your small business?
Bank Statements and Receipts
You have to produce bank records of both your personal and business to the auditor. If you directly paid some expenses with cash, you have to submit the paperwork or receipts as proof of the initiated payments.
Nowadays IRS accepts credit or debit card statements as proof of payment. But they should show the name, date, amount and the address of the payee.
Books and Records
It is not necessary for small businesses to keep all formal records such as ledgers and journals. If you have maintained all these records, the auditor is entitled to see the records.
Special Equipment Records
If you have listed properties such as computers, vehicles used for both business and personal needs, cell phones and so on, it is essential to keep the proper records of all those listed properties. Purely business equipment does not come under this category. Only the equipment that is used for both business and personal called as listed properties.
When you get selected for IRS auditing, you have to keep in mind that they have an assumption that you have done something wrong. Be confident while you present your tax returns and answer only the questions that are directed to you.