How to Protect Your Business Against an Audit

People who own their own business know how scary it can be to face the possibility of an audit. You start to second guess yourself and worry you've made careless mistakes. That's why it's so important, particularly when you first start a business, that you take steps to protect yourself against the possibility of an audit, as well as ensure you're prepared should you ever be required to submit to one.

Difficulty: Easy

Instructions

Things You'll Need:

• Bank statements
• Business receipts

1. Save any and all paperwork that relates to expenses and income. Even the most mundane receipt can end up proving important in the future should you have to protect yourself against an audit.

2. Track your financial reports carefully and ensure that there are no discrepancies. Have your company's accounting department check bank statements on a regular basis to ensure the numbers are adding up. Sometimes an audit is called simply because the bank or the IRS detects miscalculations.

3. Keep the number of deductions you add to your tax statement at a minimum to protect your income. This may sound a bit contradictory to what you would like, but look at it from another perspective. If the IRS notices that your tax returns have a lot of deductions that they might consider frivolous, then there's the chance they'll audit your business to see where they can pin you for additional taxes.

4. Read up on the current tax laws, particularly where deductions are concerned. Knowing the law in advance will help you make the best decisions regarding what actions to take on your behalf. Find business law information at the IRS website (see Resources below).

5. Find a lawyer or learn more about business audits and business law at FindLaw.com (see Resources below). It offers one of the most complete resources for those who run their own business.

Tips & Warnings

• Always keep your records neat and well organized. Auditors are more likely to be forgiving of inconsistencies if your records are well tended. If you present them with a cluttered pile of contracts, receipts and statements, they are going to assume you've been very careless and work to spot all of your mistakes.
• Note that unless you have legal counsel as part of your staff you're going to have to expect some expenditures should you have to defend yourself against the IRS. Always make provisions to pay for a business lawyer, especially if you're worried the IRS may find inconsistencies in your bookkeeping.

Resources

• Tax information for businesses from the IRS.
• Business Audit Law at FindLaw.com.