How to prove tax claims as a small business

If you are audited, you need to know how you can prove your tax claims of business expense write offs.Here are guidelines on how you can prepare for your audit and how you can prove the claims that you made on your tax forms.

1.Be prepared before you even hear about an audit
The best way to prove your tax claims of expense write offs is to be prepared to prove the legitimacy of your claims through proper and extensive documentation.Keep precise and complete records of all business expenses.Don't overlook the smallest expense that you make because you will need to back it up eventually.Keep copies of all invoices, all receipts, all contracts, every credit card statement, every check that is written, and every order that is made.
Don't forget to keep documentation of all of your income, also.While some tax audits will only require that you supply documentation for particular and specific items on your tax filing, there is one type of audit that will require you to prove and back up every single item on your business tax filing.You need to be prepared for this type of audit by keeping thorough and organized records that will be easy for you to produce in case they are asked for.

2.Respond to the auditor's request as quickly as possible.
The first step in proving your deductions is by having all of the information already available and organized.The next step is actually replying to the IRS auditor's request for documentation as quickly as you can.This will make you appear to be responsible and organized, and chances are that the auditor will spend less time examining your records.You do not want to be over-exposed, in case there are areas of your finances that might be vulnerable to an audit.

3.Decide how you are going to handle the audit itself.
You have two options for handling your audit.You can either choose to attend the audit yourself, or you can choose to hire a professional representative.The representative can either go to the meeting in your place, or can attend the meeting with you.If you choose to attend the meeting, be very aware of the fact that no question and no statement will be taken idly.The purpose of the audit is to discover if you underreported income or overreported your expenses.This means that every statement that you make will be analyzed.Even if your finances are squeaky clean, it is still to your benefit that the auditor has access to as little information as possible.

If you decide to go to the audit meeting by yourself, make sure that you follow these essential and basic guidelines.

• You must be as organized as possible.


• Most audits only ask you to supply documentation for specific items on your tax forms.Only bring the documents that are related to those items, which they will list when they contact you about the audit.


• Only give the information that the IRS auditor asks you for.No more, and no less.You don't want to be evasive, but you also don't want to become more exposed than is necessary.


• Be absolutely honest, but also be brief.


• Make multiple copies of all of your documents.This means that you can give the IRS one copy, and keep multiple copies for yourself.Do not give the IRS any originals.


• No casual conversation.


• Stay calm throughout the entire meeting.It does not help your case if you become flustered or angry.


• Ask for copies of any information that the IRS has on you in their files.If you have to sign anything, you must also get a copy of that document.If possible, you should ask that your representative have the opportunity to review the document before you sign it.