Some Basic Guidelines For Internal Revenue Audit

September 4, 2013 11:54 am0 commentsViews: 53

tax_tipsWhile business owners hope that they will never have to endure an audit from internal revenue offices, there is always a good chance that they will be audited.  If it concerns your business, there are a few things you and your accountant can do to make the process a little easier. It is all about preparation and organizing.

1: Keep all of your business receipts to hold proof of all the deducted expenses and purchases you have claimed.


2: Keep all of your checkbook records based on the order in which they were paid. In your ledgers, ensure that you include something clear that will not be confusing to the tax auditor.


3: Do not deduct capital items as repairs.  Tax auditors may want you to provide proof that checks containing large amounts are for repairs and not capital purchases.  Some say it is better to write several smaller checks than one large check.


4: File and keep all of your tax forms. These include W-2 forms, K-1′s, 1099′s, and other types of tax returns in your region or locality.


5: Use terminology that is proper in all of your accounting entries. Ensure that everything is descriptive and accurate. Short phrases such as “labor” and “gift” should be avoided.


tax_tips16: If possible, write checks for specific items rather than one large bill.  Try to avoid lumping purchases into one purchase.


7: Write checks for all of your charitable contributions.  Cash donations should be avoided and tax auditors do not smile on such a thing.


8: When buying capital items, such as machinery, make sure you place them in your capital purchases, as well as on your depreciation schedule.  Avoid listing them as repairs. All items that have a useable life of over one year are considered a capital item.


9: Make sure you have an organized filing system. This will help you get through the audit if you can find the things that are asked for more quickly.


10: Try to keep a journal of ALL transactions throughout the year that will make it hard for the tax auditor to understand and browse every single thing.  On the other hand, when inspected, the journal will enable you to remember why you made those specific purchases and transactions.  


11: When being audited, provide only what the internal revenue auditors ask for and never more.  These tax auditors are trained to dig as deep into your business as they see fit.  If you give them more than what they ask for, they may find other small things that may bring up other issues which they may not have been thinking of inquiring about in the first place.


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