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How to prepare for tax audits

For businesses tax audits can sometimes be a very dreaded thing. It is definitely something that has to be prepared for. If you did not prepare well for a tax audit that would not be good for your company. You have to prepare all the necessary information that an auditor is going to be looking for and make sure that your records are all in order.

There are many things that an auditor will probably look at, including the following-

  1. Income: When the auditor comes he or she will probably want to look at your bank statements etc. and compare it with the income that you reported on your tax returns. They will check everything to make sure it is exact and that you have not left anything out. You will want to be sure that you have recorded everything such as gift cards very specifically as a gift or whatever it was, so that the auditor does not try to say that it should have been included in your income. The auditor will probably be very picky and precise so you will want to be sure that you have recorded everything almost perfectly.
  2. Expenses and deductions: Another thing the auditor will look at is your expenses and deductions. They will compare it with what you have filed in order to see whether or not you were completely honest in your filing. They will look to see that all your expenses and deductions were done correctly. You will want to be sure that you have only included things as expenses and deductions that really were business expenses and deductions. You will want to be very careful that you do not record anything as a business expense or deduction that is not really a business expense or deduction. Some people will stretch and say that something was a business expense when it was really more of a personal expense than anything. They rationalize and say that they will be using it in their business sometimes so it is a business expense. In all actuality it is a personal expense that you will sometimes use in your business.
  3. Loan and interest: The auditor will also check to see if you have used loan and interest money only on business expenses. You cannot get a business loan and then use some of it for personal expenses. They will check this to make sure that you have not spend any of it on yourself but have actually used to pay business expenses and business expenses only.
  4. Employee classifications: Another thing they will compare with your return is employee classifications. They will check your return against things such as time cards, job descriptions, invoices, contracts, benefit plans, canceled check etc. They want to be sure that you have included everything honestly and that you are not cheating your way out of certain taxes.
  5. Payroll: Once again, they want to check your report against other things. They want to make sure that you comply with standards and that your taxes have been complete and accurate and that you have included everything that you are supposed to include.

In order to prepare for a tax audit of this kind you will want to make sure that you have gotten all these things in order. You will want to prepare and have all the documents ready that the auditor will want to look at. If you are already prepared with the stuff before he or she gets there it will just help you out because they will start off with a good first impression.

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