Audit Proof Your Business

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When meeting with business owners one of the most common fears they have is an IRS audit.  Most of the time this fear stems from stories they’ve heard and experiences that others have had with the IRS.  Yes, this is something that should be taken seriously, but, it shouldn’t effect your aggressiveness in taking every legal deduction that is allowed.  There is also no reason to live in fear of the IRS.  As long as everything is documented, recorded properly and accurate you have nothing to worry about.  Here are some steps you can take to “Audit Proof” your business:

  1. Use accounting software: Having a good set of books will take away most of the pain of an audit.  When the IRS sees this they think that you are at least attempting to do things correctly.  If the IRS feels like there is nothing to be found they will move on.  But, if you don’t have any books and can document hardly anything the IRS will assume that most of your deductions aren’t legitimate.
  2. Keep receipts for everything $75 or more:  If the item is less than $75 you don’t need to keep the receipt, however, you do need to record it in your ledger or accounting software.
  3. Take notes: This can be done each day with your to-do list or on your calendar.  This is a good paper trail that shows what you did that day, where you went, who you met with, etc.
  4. Keep track of your mileage:  This can also be done on your calendar or in a mileage book.  You should record the odometer reading at the beginning of the year and at the end of the year.  Each time you drive your vehicle for business you should record the date, where you went, the purpose of the trip and the mileage amount
  5. Keep your records safe:  Backup your accounting software and store it off-site.  Store your paper documents in a safe location.  Also, keep everything for at least 3 years from the date you filed the return.
  6. Self Audit Your Return First: Look at the largest expense items on your tax return and ensure that those numbers are correct and also that you have documentation for those expenses.  The most common issue that triggers an audit are larges expenses that are out of line with what a business of your size should have.

Remember the IRS is trying to collect as much money as possible.  If they feel like your are doing things correctly and there is “nothing to see here” they will move on to bigger and better things.

If you aren’t using accounting software or keeping your books or you are worried about an IRS Audit, call my office at 757-434-3089.

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