Nobody wants or likes an audit. The thought of IRS coming in and you having to prove that which you claimed on your tax return is brutal, no matter how honest you may be. The sheer stress of it all is enough to make even the strongest man or woman shake in their shoes. If you are the victim of a random audit, is there a key to a successful end?
An audit may be triggered by a vast number of things: Expenses that don’t look just right, listed deductions or income…just about anything. We as taxpayers will never know just what caused that fateful letter to land in our mailbox, but one thing you can bet on: if you are honest and prepared, it will be no more than a minor annoyance. Those who sweat it out usually have a reason to sweat it out. So what’s the secret to a successful audit?
The way I see it, it’s a two-fold secret. First, be honest. Remember, although you may use the best CPA or EA on the planet, once you sign the return it’s your responsibility to vouch for everything that’s on it. It there are any falsehoods or honest mistakes, they are your mistakes. Don’t be afraid to ask your tax preparer questions, and have him or her explain what’s there before you sign. An honest mistake could turn into a nightmare, so take your time and read through it looking for anything that might look wrong or on the incorrect line. You don’t have to be an accountant to know if you donated $500 this year and the return says $5000, you’ve got a typo. Make sure to correct anything you can before you file.
Records, records, records. If you are a Subchapter S corp, all gains, losses, income and expenses flow through to your personal return. Be sure to keep accurate records of all business expenses, and keep all receipts. A scanning program such as Nuance Paper Port, bought for about $100 can be used to save all your receipts in an organized fashion digitally, along with all your receipts for personal and business expenses. Be sure to keep two checkbooks, and if you use credit cards have two- one for personal, one for business. As they say, “never the twain shall meet.” Be sure to keep all you expenses and income separate including separate checkbooks. Stay organized, keep your personal and business separate, and be true to your integrity.
…And hope to heaven you never get that letter.
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