4 Proactive Audit Defense Strategies For Business Owners
As a business owner, if you use a certified public accountant to help you with your taxes, and you submit all the right supporting information, hopefully, you will never face an audit. The thing with an audit, though, is that you never know when it is coming, which is why it is smart to have a proactive audit defense strategy in place.
Proactive Strategy #1: Run a Smooth Bookkeeping Operation
First, you want to make sure that you have a solid bookkeeping strategy in place. You should keep detailed records of each transaction that your business makes. You should be able to explain every sales and expenditure that you make. The more detailed your bookkeeping is, and the more it is backed up with supplemental records, the better shape you will be in when you are audited.
Proactive Strategy #2: Keep Receipts Organized
Receipts are often the key to passing an audit. However, don't expect to throw all your receipts into a box for the year and have that satisfy the auditor. You need to keep your receipts organized. One of the best ways to deal with receipts is by scanning all your receipts into your accounting software. From there, you can add explanations to your receipts, and organize them based on the transaction type.
You should also keep the physical receipts as well. However, having organized digital receipts can really make a difference. Your accountant can help you come up with a system for keeping receipts organized. This will help you with your taxes and if you are audited.
Proactive Strategy #3: Keep All Loan Agreements & Financial Contracts
Sales are not the only way that your business brings in money. If you take out a loan, make sure you keep all the signed loan documents. If you issue a loan, keep all records related to issuing the loan and keep track of all payments made to you. If your business sells assets, scan and keep each selling contract. If you make an agreement for giving or purchasing services, keep those documents.
Any loan or contract that involves the sale of money should be scanned and saved. You want to be able to account for all the money you have each year. Have your accountant review all loans and financial contracts to make sure you are keeping the right records.
Proactive Strategy #4: Detailed Mileage Records
With mileage records, many people try to skimp things and just write down how many miles they drove that year. However, in truth, you need to be much more precise. You need to write the starting and ending mileage for each trip, as well as the starting location and destination. You need to keep track of the purpose of the trip, and the total miles that you drove. You need to be able to back-up the mileage you claim on your taxes with actual records. Your accountant can set you up with mileage tracking apps.
Talk with your accountant about other steps you can take to protect yourself, so if your taxes are ever audited, you have the right information in place in order to mount a solid defense strategy that will ensure that you don't face any financial consequences from your audit. If you use a professional certified public accounting firm and keep good records, you should be safe if you are ever audited.