This is a guest post by Craig Keolanui of SmBizWinningTips
Are you facing an unexpected audit from either the state or Feds? If so, you might be seized with panic, worry or doubt. A tax audit is never easy, but keeping things highly organized and following instructions is the key to getting through the process with speed and confidence.
Reframe it as a presentation to an investor or client for your services and much of that consternation and doubt will pass and so will the time it takes for the audit.
You will receive a list of information required. Follow it carefully.
Be prepared to reveal two-three years of data, but follow the specific details in the notice you receive as it can be the difference between passing and failing.
Offering to provide more information than requested may actually make things worse and add time or further scrutiny to the audit. It is best to adhere to the instructions, providing more information only if it is requested.
Auditors have a limited amount of time to spend on each audit and more information will only lead to more effort spent trying to find something wrong with your records. After all, they are trained to find errors.
If and when more information is requested, buy time to provide it in an organized manner.
Organization is paramount to success.
The rule is “quality” over “quantity”. Make sure any reports are flushed out with details, in proper order or sequence and labeled. If you use a program like Zoho Books, make sure all reports are from Zoho Books and not hasty recreations from Excel or another program. If one year doesn’t match a previous year, you are better off inputting the information in again to ensure that all the reports are the same format. Believe it or not, presentation makes a difference as it will make your business appear professional, organized and on top of tax issues.
Organize your information in the chronological order in which it is requested and use folders or any dividers to keep it organized. Highly organized information will not only speed up the audit, but also reinforces the perception that you have little to hide.
Know your numbers and the information provided.
If it takes too much time to answer any questions, be assured that further details will be requested and your audit will proceed at a snail’s pace. Your reports and professional organization can be rendered useless if you can’t answer the simplest of questions.
Start by knowing “what” each report is and then proceed to understanding the details. Have answers to questions such as: Why were sales so inconsistent or why payroll fluctuated year to year?
Auditors are looking for inconsistencies and illogical spikes because they are most likely to lead to more revenue generation over simple accounting mistakes.
If your numbers do not match, know why.
Mistakes happen and many companies are caught underpaying taxes, so don’t feel like a criminal, unless you have reason to, of course. Any error that you catch and bring up to an auditor, will lead to less scrutiny. If you can explain the justifiable error and bring it up beforehand, the taxing agency can often help ease the burden for any penalties. In any case, understand an audit is to generate revenue and not to throw people in jail.
There is no need to be nervous, stressed or feel like the world is crumbling under your feet. Audits happen and more often than not are passed without incident. Follow these basic steps and you can sleep easier at night.