How To Prepare For A Tax Audit

How To Prepare For A Tax Audit



How to​ Prepare for a​ Tax Audit
There is​ no reason to​ be afraid of​ an​ audit if​ you​ have been ethical and truthful in​ your accounting methods .​
However,​ it​ is​ best to​ be prepared for an​ audit to​ make sure that it​ runs smoothly .​
Different types of​ audits require different preparation methods.
If a​ business is​ brought up for an​ audit by the​ IRS,​ there are several things you​ can do to​ prepare your business for audit .​
First,​ review the​ tax returns that are being audited .​
Make sure that you​ are ready to​ explain how you​ or​ your tax preparer came up with the​ figures in​ the​ return when you​ go into the​ audit .​
If you​ don't know how your tax preparer came up with the​ figures,​ or​ you​ have any questions,​ you​ should contact your tax preparer prior to​ the​ audit for any clarification needed so that you​ are thoroughly prepared for the​ audit.
Organizing records used to​ prepare your tax returns yearly is​ a​ great way to​ maintain proper accounting before an​ audit .​
However,​ if​ you​ have not organized your records as​ you​ filed year by year,​ now is​ the​ time to​ organize them for the​ audit .​
Make sure that the​ person performing the​ audit has access to​ all records used to​ prepare the​ tax returns .​
For the​ audit to​ go smoothly,​ these records should be organized in​ a​ logical fashion .​
in​ addition to​ making an​ audit quick and painless,​ this organization will lend you​ credibility with the​ auditor,​ thus making the​ auditor take things in​ stride if​ a​ small issue does arise during the​ audit.
Your audit notice should tell you​ what documentation the​ auditor wants to​ see during the​ audit .​
Typically,​ auditors may want to​ see bank statements,​ canceled income checks,​ receipts for expenses,​ and your financial records .​
If you​ have a​ smaller business,​ you​ are not required to​ maintain a​ formal set of​ financial records such as​ journals and ledgers .​
However,​ the​ auditor may request to​ see any financial records you​ do have,​ and see your bookkeeping system during the​ audit .​
If your bookkeeping system in​ on​ a​ computer or​ otherwise electronic,​ make sure you​ take a​ printout of​ your financial records with you​ .​
If you​ do keep a​ ledger and journal for financial records,​ the​ auditor is​ entitled to​ see them and you​ should bring them to​ the​ audit also .​
in​ addition,​ you​ should bring with you​ any prepared financial statements so that the​ auditor has a​ clear overview of​ your bookkeeping.
If you​ don't keep a​ formal set of​ financial records and you​ are missing a​ few receipts,​ take your appointment books,​ service logs,​ and diaries with you​ to​ the​ audit as​ well .​
the​ documentation in​ your appointment book,​ service log,​ and diary will substantiate your expense for deduction without a​ receipt,​ provided the​ expense can be proved to​ be reasonable based on​ the​ information in​ your personal records .​

If you​ have a​ home based business,​ you​ will also want to​ bring with you​ to​ your audit any usage logs of​ listed property .​
This is​ anything that you​ use for business and home use .​
Usage logs show that you​ use these things for business purposes,​ thereby allowing you​ to​ take a​ partial deduction for that property during the​ audit if​ you​ have not already done so.
If you​ are in​ any doubt as​ to​ what information you​ need to​ prepare for your business tax audit,​ you​ should contact a​ certified public accountant to​ assist you​ and represent you​ to​ the​ audit representative.




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