An ancient proverb states: “If ye are prepared, ye shall not fear.” This wisdom can be applied to many things, including taxes. Doing all you can to prepare for an audit will likely prevent you from being the subject of one. Bookly provides tips to help best prepare you for tax season:
- Outsource your bookkeeping. Allowing a professional to make sure your books are accurate and well-kept will improve the credibility of your return. This will also ensure that you can spend your time growing your business and not getting buried in the tediousness of bookkeeping. Feel free to schedule a free one-on-one demo to see how we can help you with this.
- Hire a tax professional. We all know that tax law is complicated. Allowing a professional to prepare your tax return will not only increase the accuracy of the document, but also decrease your chances of being audited. Business owners who file a return on their own (even with accredited software) are more likely to attract attention from the IRS because they know you have a limited knowledge of the tax system.
- Prepare documentation. It’s important that you have the proper documentation for each transaction within your business, especially revenue transactions. If you are audited, the IRS will put most of its effort into verifying your income. Be sure to have copies of checks, invoices and any other documentation relating to income. Other important documents to keep are bills and receipts.
- Avoid red flags. Travel, auto, entertainment and business meals are a few areas that the IRS pays special attention to. Being meticulous in your documentation here will be key. If you are staying in a hotel, keep the receipt and make sure that it has the name and location of the hotel, the dates you stayed there and separate totals for lodging, meals and more. If you’re attending a networking event, it’s a good idea to keep documentation relating to the trip (for example, an email advertising the event). Mileage reports are another important form of documentation. There are dozens of iOS and Android apps that can assist with this. These are just a few examples of meticulous documenting. You can refer to Pub 463 for more information.
- Stay away from funny business. Regardless of your entity type, you and your business are separate. This means that the only things that you should be spending business funds on are expenses directly related to the operation of the business, not personal expenditures. Adhering to this rule will decrease the number of red flags included in your P&L statement and will further keep you protected in the event of an audit.
All in all, the basic idea is to not get too relaxed with your business operations and tax return. Be accurate, be organized and be deliberate. Otherwise, you may find yourself on the wrong side of a Liam Neeson film: They will look for you, they will find you, and they will audit you.
“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” – Aristotle.
Shayler Stagg manages the books for 45 small businesses from various industries, is an avid reader of Greek philosophers and is a huge Metallica fan.