Tax Practices to Avoid AuditingSubmitted by Pennington Financial Group on January 4th, 2018
A tax audit is something that most business owners strive to avoid. They are likely to be lengthy and agonizing, causing an unnecessary amount of stress that could likely have been circumvented through forward-thinking tax practices. It is important to be mindful of your finances if you are also hoping to avoid an audit in the future.
Although it may sound obvious, you are responsible for whether or not you are chosen for an audit. Yes, many who are selected for the auditing process are considered to be randomly chosen, but there are measures you can take to try to avoid being part of those chosen. It seems simple to give the tip of keeping your finances and records organized, but it can make or break the entire process. If you have kept your records for the past years and have an impressive level of organization, then it is unlikely that you will be chosen for an audit or will have to endure a more in-depth investigation. In the end, this will save you time and hopefully some sanity.
Similarly, make sure that your records are honest and accurate. Although there are some recommendations for the lifespan of records that you must keep in case of an audit, it is best to err on the side of safety and keep any documents that you find may be necessary in case of an audit. You must also be able to defend any purchases or receipts that are filed under your business, meaning that they should be for professional purposes if they were purchased at the expense of a company budget. However, it is advised to use your best judgement and only purchase what will benefit the company, or clients, at large.
There are also a few practices that can act as red flags for auditors when determining their next auditing subject. Although these are not clear signs that you will be chosen for an audit, they can cause attention to be drawn to your business. Such mistakes often include handwritten transactions and returns, given that they are not considered official documents. There are other attributes that could contribute to an audit, but they can be easily avoided if you follow the policies and procedures of appropriate business conduct through your taxes.
While this may be unpleasant, it is always best to have the thought of a tax audit in the back of your mind so that you can be prepared if it ever does happen to you. Even the red flags can be easily redirected if you are prepared and organized, meaning that if you present the necessary materials, unnecessary investigations can be avoided. Tax auditors are not there to cause any trouble, but rather to ensure that all companies are complying with the proper and appropriate tax law framework. For more information about the process of tax auditing or how you can be better prepared, contact Pennington Financial Group. We are located in Gold River, California and serve the surrounding area.