Important Facts about Business Tax Audit

Be it a large surface and air transport provider or a small agro and farming business, tax audit is one experience which is feared by all. Imagine the Internal Revenue Service (IRS) making such a visit to your company! The news itself is a devastating blow, leaving aside the time and expense involved. However, having an advance knowledge about what the auditors are exactly looking for can help you to demonstrate the validity of your business clearly. The auditors will thoroughly study your business records and tax return files. In addition, they will study your bank statements, sales records, invoices and other bookkeeping records. You must also keep a track of your inheritances and other gifts, either in cash or kind, otherwise the auditors may impose tax on them.

The following are the fields that you need to pay attention while preparing for such tax audits.

While reporting expenses and deductions, the auditors will consider your bank statement, paid bills, credit card statements, payment receipts as well as the amount that you have donated for charities. You reported debts and business losses will also be considered. In case you have borrowed money for your business, keep all your loan paperworks ready. As a whole, keep a track of every single business expense. However, make sure that the documents are legitimate.

In addition, the auditors will review the nature of employment terms that you have with your employees. These days, employee classification is thoroughly scrutinized as many companies tend to showcase their regular employees as independent contractor. Thereby, you need to keep a record of the contracts/ appointment letters including the job descriptions, salary information and other benefit plans. The salaries and bonuses that you pay to your employees will be examined and compared with the industry standards so as to ensure the legitimacy of such financial documents. At times, they can also consider your personal expenses to determine whether or not your lifestyle justifies the income that you have shown on the return file.

Those who are novice in this filed can refer to the Small Business and Self-Employed Operating Division of IRS, which helps the small business owner to comply with the various tax laws. They also have a Market Segment Specialization Program or MSSP that enables the auditors as well as the entrepreneurs to understand the different tax related issues of your specific industry.