Do you fear the word ‘audit’? Don’t worry most individuals and businesses do too. No one wants to be under the gun of the IRS. Unfortunately, businesses get audited every day and not just because they did something intentionally wrong. Sometimes even the smallest mistakes (honest and unknowing) can trigger the IRS.
Before you worry that your business is going to be next, learn the steps you to pass it with ease. These next steps will help you be informed, educated, and ready should your number come up next.
Be as Detailed as Possible
The most important thing you can do on a daily basis is keep detailed records. You never know when the IRS may knock on your door. Would you feel better having detailed records that spell out your story or you feeling overwhelmed at the questions thrown at you that you can’t answer?
Separate your business and personal accounts and keep files in the way that best suits you. Do you prefer digital files? Create them on your computer, create a backup and continually update them. Scan every piece of paperwork and store it in your software program. This includes income documents, receipts, and contracts. Anything that details money coming in and out must be recorded and kept.
If you’re still a paper and pen style person, organize your filing cabinet, create folders for each category and be meticulous about filing your paperwork. Even things you don’t think you’ll need, keep them.
By law, you are supposed to keep your detailed paperwork for at least three years, so don’t get overzealous and shred everything annually – it could lead to trouble.
Tell the IRS Who you Pay
If you hire people to do work for you, the IRS wants to know. How did you hire them? Are they employees or independent contractors? There’s an important difference. If they’re employees, you have to pay taxes and benefits. Yes, you’d owe taxes for the people you pay to work for you. If they are independent contractors, you aren’t under the same obligation, but you have to let the IRS know how much you paid them.
Make sure the people you hire to help you don’t fit the employee requirements set by the IRS. If you’re not sure, check out the IRS guidelines. Even if you do hire on freelancers, make sure you have their tax information. Have each freelancer complete a W-9 and then you must issue them a 1099-MISC at the end of the year if you paid out more than $600 to one individual.
Hire a Professional
Tax laws change all of the time. If you aren’t up-to-date, you could inadvertently violate one and trigger an audit. It’s best to work with a licensed tax advisor or bookkeeper. Not only can they help you through an audit, but on a daily basis too.
Keeping track of business income and expenses is hard work while you’re running a business. Why not let an expert handle that part for you, especially when the risk of an audit lingers? Between compiling the paperwork, making sure you have everything you need, and knowing the latest tax changes, it can be daunting and overwhelming. Handing that job over to a professional takes the pressure off your back.
File your Taxes on Time
Never file your tax returns late – that’s like handing money over to the IRS because they love to charge late filing fees, interest, and penalties. But, if you file too early, you give the IRS even more time to go over your records and decide to conduct an audit.
Business taxes have more deadlines than just the April 15th deadline. This is another reason it’s crucial to work with a tax professional that will not only keep your organized, but make sure you file when you’re supposed to and pay the amounts required.
If you do get audited – don’t worry. Yes, it sounds scary, but with the right steps it isn’t as overwhelming. The key is to start getting your business ready today. Don’t let them overwhelm you by catching you off guard. While you don’t want to hope that they come knocking on your door, you can feel at ease knowing that you are ready if they do.