If you’ve received an audit letter – an official request by the tax authority to review your accounts and confirm your taxes have been paid to date – don’t panic. Prepare.
No business owner looks forward to a letter from the taxman requesting a closer look at the books.
These four steps will help you get through the process with minimal stress and the best possible outcome.
Respond promptly to Audit Letter
If you file your taxes reliably and pay on time, there’s a good chance the government tax office contacted you for a spot check.
In this case, all that may be asked is that you provide receipts and answer a few questions. Give the tax office the information they’ve requested promptly so they can close the file quickly, and you can move on.
If an on-site audit is required, you can’t avoid the inevitable. Call to confirm the date and request any information the auditor will need to help you prepare.
Responding promptly and cooperatively every step of the way is the best strategy for getting through an audit. Reacting defensively or unprofessionally can invite more probing questions.
Seek professional help
Get in touch with your accountant as soon as an audit has been scheduled for advice and support. And if you’ve been handling the books on your own, now is the time to consider hiring a tax accountant.
A tax accountant can explain the audit process, help you get your books in order, and offer personalized advice to help you prepare.
You may want to hire a tax lawyer if you have concerns that are beyond an accountant’s scope – if, for instance, you have unfiled returns, under-reported income, understated tax liabilities, or if you can’t validate all of your expenses for the tax year in question.
Many tax lawyers offer a free consultation and can provide peace of mind by explaining your obligations and rights, and ensuring those rights are protected.
Get organized (Prepare to be audited)
An auditor will ask you to provide receipts that prove you qualify for any write-offs you’ve claimed. On the day of the audit, be ready with your paperwork and be prepared to answer any questions.
Being organized and prepared shows you’ve done your best to report your taxes accurately. If your papers are in good order, and you don’t raise any red flags, it’s much more likely the auditor will wrap up once the audit’s basic requirements are met.
As a word of caution, only provide the auditor with the information they’ve asked for – no more, no less. Offering more explanation or “proof” in the hope of avoiding further questions may backfire, raising new ones. Stick to specifics.
In the best possible scenario – your records are in order and you’ve been conscientious about paying your taxes – an audit won’t lead to any unpleasant surprises.
If, however, an auditor finds that you do owe unpaid taxes, unless you have a solid reason to challenge the auditor’s findings, pay what you owe immediately.
You’ll avoid accruing additional penalties, interest, fees and payments. Perhaps more importantly, you’ll be able to put the audit behind you so you can get back to focusing on your business.
A final word to the wise: if you do try to fight the taxman, before pursuing legal action weigh the cost and benefit. Legal fees can add up quickly, so be sure the amount requested by the auditor – including interest and penalties – is worth what you’ll end up paying in legal fees.
Get professional help from a seasoned Bookkeeper who focuses on helping small businesses maximize on their profits. Contact us via our website or call us at 877-454-2249