What to do daily to be prepared in case of an audit
In order to be prepared for that always possible chance of a tax audit of your business, there are daily steps that you can take in order to be ready to face the tax auditor in case he or she comes knocking at your door.
Being audited does not necessarily mean that your business is going to go down the drain, courtesy of the federal government.If you prepare for your audit by keeping careful records of your business transactions, expenses, and income every single day, then you will be ready for that potential audit, in case it comes.
Although it is much easier to prevail at an income tax audit with the proper records, it is possible to survive without them if you plan ahead and do some homework. If you walk into an IRS audit and offer a hard-luck story about your missing records, the best you can expect is for the auditor to allow a token number of the deductions claimed on your return. With proper planning, however, the auditor may be inclined to allow most, if not all, of the deductions--even if you don't have complete records to back them up.
How to prepare in case you are the subject of a tax audit
1.Keep track of all of your business expenses-meticulously.
Every time you have an expense that is related to your business, you need to keep track of it.This means that you need to keep copies and originals, if possible, of all of your invoices.Keep all of your receipts.Keep track of all of your credit card statements.Keep copies of all of your checks, any purchasing forms that are filled out, etc.Jot down complete information about every single purchase that is made.This includes the retailer or merchant from whom you make the purchase.The location of the purchase.The amount of the purchase.Keep copies of any contracts that are made between you and any other party.
Keep all of your information organized.Keep information organized by day, by week, and by month.Have a complete filing system so that anyone who makes a purchase will know how to record those purchases.Keep all of your information for at least 15 years.
Purchases include any supplies for manufacturing, any equipment for your business, any company expenses, any purchases made with your company credit card, and so on.
2.Keep track of all sources of income.
All of the sources of your income have to keep kept track of just like all of your purchases.Note down all sources of income.Any contracts that you make with clients must be filed away.Don't forget your filing system!
3.Keep track of any other business expenses.
There are a number of expenses that you will want to claim on your tax return as deductions that might not seem as if they can be legitimate business expenses.This includes any parties that you throw for your business, any outings with clients, and similar expenses.
Don't forget to keep track of all of the expenses associated with these different events.If you can reconstruct the event and you are able to come up with a viable reason for the expenditure, then you will be able to satisfy the auditor.
Finally, you should always keep copies of any documents that pass through your company that are associated with business.This includes any correspondence that is part of your business, any faxes that are sent or received, any transactions that are made.
Finally, keep your personal finances in order also.If your business is audited, your personal finances may be audited also.