How to Prepare for an Audit
The large brown envelope stares at you from its perch on your desk. The envelope itself doesn’t provoke anxiety, but three letters that appear in the return address make you blush: IRS
Although the letter might be nothing more than a note telling you to fix a tax return error, the fact remains that a dreaded IRS audit is a possibility. An IRS audit can turn a flawlessly run business into a disheveled nightmare. The audit morphs into priority number one and takes the focus off of what matters, such as selling products and attracting new customers.
If you want to avoid pushing the panic button, we suggest following a few tips on how to prepare for an audit.
Maintain accurate records
Stuffing all of your business records into a shoebox and waiting until April 15th to organize the mess doesn’t come close to meeting IRS accounting standards. You should organize primary and secondary tax records throughout the year. Bills and income receipts represent primary records and secondary records, including mileage ledgers and depreciation spreadsheets.
Here are some examples of records to maintain throughout the year:
- Auto Expenses
- Bank Statements
- Canceled Checks
- Property Expenses
- Income Statements
- Appointment Books
- Entertainment Expenses
- Equipment Depreciation
Prepare like it's an interview
The best way to nail a job interview involves knowing which questions the interviewer plans to ask. The same principle applies to an audit. You must have a good idea of what paperwork the auditor wants to examine and what questions most auditors will ask small business operators.
Several online resources, including the IRS website, provide insight into the IRS audit process, including the most common questions asked by auditors. Be sure to network within your industry to see how your professional peers have handled audits. The IRS publishes audit guides for the agency’s examiners and posts the guides on its website.
Collect and organize information
If your record keeping lacks accuracy, go back to the years when you didn’t keep accurate information and try to reproduce those records. IRS auditors look at red flags as evidence that you’re hiding something.
If you find paperwork missing, contact the organization that might still have the records on file or within a computer database. For example, your mortgage company should be able to provide interest expense information and the county should have a record of property taxes paid for at least the past 10 years.
Act in a professional manner
The IRS establishes the time and place for most audits. Comply with the IRS’ request to get started on the right track. Never argue with an IRS auditor, or worse, become confrontational. Politeness, promptness, and professionalism help you build much-needed trust. Wear business attire and present your financial information in an organized file.
Recruit a tax professional to help you
Tax attorneys, enrolled agents, and Certified Public Accountants (CPA) possess the experience and professional acumen to represent you during an IRS audit. The professionals in these fields receive intensive training in tax laws, as well as the nuances of taxpayer rights.
If you’re struggling to understand the tax codes, reaching out to a professional could save you lots of time and spare you a few headaches.
Use business management and accounting software
Accounting software has made the steps to prepare for an audit much easier. These tools help you organize all of the information you need for your taxes in easy-to-access files.
Jobber offers several tools to ensure all of your financial information creates clean tax returns. Our invoicing feature works seamlessly with QuickBooks, an accounting software that a large number of small business owners use. Enjoy the benefits of the best QuickBooks integration found in the financial software industry.
Synchronize your clients, products, services, and invoices into one QuickBooks account, and rest easy knowing that you can find all the information you need to get through an audit in one place.