Audits are a common fear among all taxpayers. Business owners work hard year-round to maintain their tax records to remain in good standing with the IRS. There are few pieces of mail to receive that will send your heart racing like a letter from the IRS.
Hopefully that day never comes but that doesn’t mean you shouldn’t prepare for one. The internet makes it easy to compile and adjust your folder of records going back four years that would interest an auditor. First, you need to know what the commonly reviewed records are:
- Bank statements: If this is a true business audit, the auditor should only need to review your business bank account instead of both your personal and business accounts.
- Invoices, invoices, invoices: Record everything. The IRS may wish to review invoices for sales, supplies and monetary assets.
- Tax returns and filing procedures: Chances are the auditor will wish to review your tax return records and accounting information used to prepare taxes. Inaccuracies could mean needing to pay more in taxes but the auditor will also check to see if you’ve overpaid.
- Ledgers and journals: Hang on to any other record keeping systems like ledgers and journals as well as supporting documentation.
The law requires taxpayers to provide the auditor with all requested documents. That’s why comprehensive and meticulous record keeping is crucial in the event of an audit. The above list does not include all documents an auditor might request. Which records the auditor requests will vary based on the size and complexity of the business. Taxpays should direct questions to the auditor or the audit supervisor during the process.
Taxpayer bill of rights
An audit may be intimidating but the state of Michigan has laws that level the playing field somewhat. You may request a reasonable time and location as well as the right to an attorney. You also have the right to receive copies of the audit schedule and review any findings with the auditor or their supervisor.
After the IRS releases the auditor’s findings, you have the right to provide additional documents or contest the results within 60 days of initial notice. Beware of interest charged on any balance due and the state recommends making the scheduled payments during the appeal and requesting a refund later if necessary.
Better safe than sorry
Taxpayers should take audits seriously. It’s best to prepare common documents that the IRS would likely review in an audit as you go instead of scrambling to gather everything at the last moment. Know that you have rights throughout the process and ensure your understanding of what’s happening. Following these steps could make the process less stressful.