There is nothing more stressful, time-consuming, or inconvenient than a business internal audit from Revenue Canada or the IRS. Because time and money are two valuable resources for every company, avoiding a small business audit is essential to keeping the doors open and everything running smoothly.
There are several ways you can protect yourself from a small business audit. The following five tips will reduce the likelihood of a business internal audit. In the event that an audit does take place, these tips will also prepare small business owners to pass with flying colours.
1. Maintain Records
The most basic step to avoid a small business audit is to maintain orderly and accurate records. These will come in handy when it's time to file taxes. Data regarding income and expenses should be kept in conjunction with receipts and invoices. Outstanding debts and tax deductions should also be an integral part of record-keeping. Armed with a stack of well-organized records, filing taxes correctly is a much easier and more efficient process. In addition, should you be audited, you can easily prove your costs and expenses.
2. Double-Check Tax Forms
Studies show that red cars are pulled over by police officers more frequently than others. This is evidence that human eyes are naturally drawn to certain types of indicators and flags. For the IRS, incomplete tax forms are a sign that something might be amiss. If you leave out pertinent information, it may raise a red flag and trigger a business internal audit. Double-check all forms to see that each line is filled out in full and that all required signatures are present. You can reduce the likelihood of becoming an audit-risk business by becoming meticulous with all associated paperwork.
3. File on Time
A late tax return automatically piques the interest of the IRS. Either get the documents in on time or file for an extension well in advance to avoid a business internal audit. While the money owed in taxes will still be due on the same date, you can have some extra time to prep and double-check all your paperwork to avoid becoming an audit-risk business.
4. Be Clear on Personal & Business Tax Deductions
Determining the appropriateness of tax deductions is tricky, especially if a small business owner happens to be a sole proprietor. A small business audit will quickly reveal any mix-ups between personal and business tax deductions. Be as honest and detailed as possible when it comes to making deductions to avoid becoming an audit-risk business.
5. Consult with a Professional
By far, one of the safest ways to avoid a small business audit is by enlisting the services of a professional accountant. There are different ways that accountants may become involved in your tax processes, from serving as an advisor to completing your actual tax returns. No matter how you use the services of a professional accountant, you will be less likely to face a small business internal audit with an accounting guru on your side.
Taxes and business internal audits are no laughing matter. With careful planning and attention to detail in your small business accounting practices, you can reduce the likelihood of an audit.