Tax audits are a terrible.
Anyone who has ever had to experience one can attest to the fact that it can be a very painful experience, especially if you are unprepared.
Some have compared the feeling had during a tax audit to the extreme angst which often occurs when one receives a jury summons — a rough occurrence in its own right. If you own a small business the pain can be even more acute.
If you’re business has been profitable over the last year, an audit could mean Uncle Sam wants to dig into your piggy bank.
Avoiding tax audits altogether is a near impossibility, even if entrepreneurs cross their t’s and dot their i’s. Even still, there are a few basic techniques which will help you avoid a potentially painful audit from the IRS.
Do it right the first time
If your books are properly in order, business tax audits are not only less likely to happen but they are also much less likely to be painful when they do.
Preparation is almost always a predecessor for success. When it comes to small business taxes and auditing, it’s simply a way to sleep easier. If you’re looking for down-and-dirty specifics on how to do it right, I’ve crafted a list below.
1. Keep up on the books.
Regular bookkeeping will ensure you’re organized. Tax audits are difficult enough. You will certainly ensure an audit stress increase of 10x if your books are in disarray and you’re completely unorganized. Keep them up to date, relevant and easily accessible.
2. Prepare financial statements.
Financials not only help prove your position from a tax perspective, but can also be helpful for internal reporting and goal-setting.
Bookkeepers can help prepare audit-ready financials for your small business. You’ll also understand more of the inner-workings of your small enterprise if you have financial statements to compare, study and analyze.