How to make your home business audit-proof

When you begin a home business one of the things you may be worried about is paying your taxes and doing it correctly. The IRS does their job to keep tax payers honest and to be sure that they are calculating everything properly. What the IRS will need with an audit is to check on your books and to make sure everything is properly prepared so they can check on the books and to be sure that you didn't make a mistake. So what can you do to make the audit less stressful? Here are some tips that can help.

The best thing you can do for your business is to document everything. Documentation means more than just calculating payroll and inputting the numbers into a software program, you really need to save receipts and many other things that will be able to help you properly document everything.

Deductions are quite common when it comes to owning a small business, especially a home business as you need to rely upon your home to be the business. You need the heating and cooling of the home along with other utilities so you need to keep good records of these numbers in order to deduct them properly from your taxes.

So how detailed do your notes need to be when it comes to making an at-home business audit-proof? You will need to have deductions that are recorded with an invoice or a bill. This is the best way to show the IRS that you have actual numbers to work with and you aren't just making up numbers to deduct. What the IRS also wants to see is that not only do you have a bill to show but that you actually paid the bill. This means they will ask you for bank records like a copy of the cleared check or a credit card statement. Anything that is a bill that is marked "paid" also shows the IRS that you are properly paying all of your invoices.

To also prove to the IRS that you are properly taking care of everything is by providing them with receipts that prove that you are making your deposits correctly. If you ever pay for anything from the bank account, you need the receipt along with the bill. Attach them together as this will be able to keep it together, making it easier on you and the IRS agent when you are dealing with an audit.

Hire a CPA to help you out with the payroll portion of your deductions as many home businesses hire their loved ones to work for them. If you do hire them, you will be able to write off their pay as a company expense, which is also tax deductible. If you do pay your family members to work for you, it's a good idea to have copies of the payroll. This will help you stay organized and it also makes sure you are keeping accurate records and paying correctly. Even if you are paying your spouse for helping you place stamps on envelopes, you have to write up a record of this.

What else do you need to do in order to deduct certain expenses and provide legitimate documentation to the IRS? You also need to have proof that your home business is trying to make a profit. This means you need to include all types of evidence to support that you are bringing in income. You should have a business plan along with other information like having a record of all your business expenses as this will also help the IRS to see that you are operating legitimately.