How to Prepare for an IRS Audit
When conducting an audit, the IRS will ask you to present certain documents that support income, credits or deduction you claimed on your return.
Records should be organized by the year and type of income or expense, and include a summary of transactions. Always send copies of your records, never the originals.
Below is a list of the kinds of records that might be requested:
Receipts - Present these by date with notes on what they were for and how the receipt relates to your business.
Bills - Include the name of the person or organization receiving payment, the type of service and the dates you paid them.
Canceled checks - Group these with copies of the bills they paid and any applicable employer reimbursement.
Legal papers - Include a description of what the case was about, when it happened and how it relates to your business, credit or deduction.
Loan agreements - Include a copy of the original loan with the following: names of borrowers, location of property, financial institution, amount borrowed, terms, settlement sheet, end of tax years statement indicating interest paid, and break-down of how you used the money.
Logs or diaries - Dates and location of travel, as well as business purpose of mileage.
Tickets - Travel tickets with the business purpose for the trip. Group them with other receipts from the same trip.
Medical and dental records - Medical savings statements, benefits and reimbursement policies, physician statements, contracts for care, capital improvements for medical purposes
Theft or loss documents - Insurance reports detailing the nature of the loss or damage, copies of fired department or police reports, photos or videos showing the damage, appraisal showing fair market value of the property before and after the damage
Employment documents - uniform policies, continuing education requirements, reimbursement statements
Schedule K-1 - These report each shareholder or partner's share of income, losses, deductions and credits
So, what steps can you do to protect yourself from an audit?
Keep accurate financial records
Find ways to LEGALLY minimize your taxes
Accurately prepare your tax returns
Meet all tax filing deadlines
To reduce your chances of an audit work with an experienced tax profession to help you "audit proof" your business.
Interested in learning more about “audit proofing” your business? Schedule a consultation here.
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