Whether this will be your first year or your twentieth year filing taxes for your business, you always need to be diligent about preparing and filing. Even if you trust that you completed your tax forms correctly, you may still worry about an upcoming audit.
The key to an easy audit is maintaining clear records the entire year. No matter the size of your business, you need to have records of what your company did and what obligations you have to the IRS.
Here are a few tips as you prepare for an upcoming tax audit of your business:
Gather your records
Technology has been both helpful and frustrating when it comes to maintaining business records. The days of keeping receipts in a shoebox are long past, but now you may have records in multiple platforms.
Many platforms have sophisticated search tools. When you are searching through your records, check all the parameters (especially date) to make sure you find the right document for the correct year. As you are gathering records, consider creating tags or category labels for important tax documents.
When you make your records simple to access, it takes the pressure off of you when looking for a specific document for the audit.
Know your deductions
As people learn about the tax code and how it applies to your business, they tend to fall into two categories: they are either overly cautious and do not claim all the deductions they can, or they become deduction-happy and claim too many. Like many situations, the best solution is somewhere in the middle.
It is important to understand the deductions that are available to your business and what they mean, especially when there is an upcoming audit. One of the areas an auditor will want to examine is what deductions you claimed and why.
Most importantly, the auditor will also want to see documentation to back up the deduction. If you do not have it, you should document your efforts to recreate the original documents.
Going through a business tax audit can be intimidating. However, when you take the time to understand and prepare your tax documents, it can make the process less stressful for you and the auditor.