Preparing for a Business Audit
by
Attorney Frederick W. Daily
Be prepared for an audit of your business.
Who's afraid of the IRS? Almost everyone. The key to surviving a tax audit -- and even coming out on top -- is not to panic, but prepare.
What to Do Before Your Audit
If you go it alone, before meeting the auditor, you should thoroughly review the tax returns being audited. Be ready to explain how you, or your tax return preparer, came up with the figures. If you can't, then contact your tax preparer or another tax pro.
Find all records that substantiate your tax return. As discussed, the IRS has a right to look at any records used to prepare your tax return. Organize your records for the auditor in a logical fashion. Your pre-audit organization of receipts, checks, and other items will refresh your recollection for the audit meeting.
Neatness counts. Forget about dumping a pile of receipts before an auditor and telling him or her to go at it. Messy records mean more digging -- and more digging, to the IRS, means more gold for them. Conversely, auditors frequently reward good recordkeepers by giving these folks the benefit of the doubt if any problems arise. Neatness builds your credibility with the auditor. Tidiness and order appeal to an accountant's mentality, and most auditors are accountants.
Pinpoint problems backing up income sources or expense deductions. You'll need to be able to show your right to take tax deductions or other tax benefits claimed on your return. Research tax law, if necessary.
What to Bring to an Audit of Your Small Business
Audit success means documenting your expenses. Proof should be in writing, though auditors are allowed to accept oral explanations. A list of items the auditor wants to see usually accompanies your audit notice.
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