There are a few things to be done when preparing for a tax audit but getting an audit insurance company should be on top of the list. Any errors or red flag could be a financial burden to a business which could lead to bankruptcy. Therefore, it is important to hire a professional to do tax audit for your business and ensure that you are covered by an insurance policy.
The ideal goal would be to avoid getting audited but these situations are mostly out of our hands especially in case of unintentional errors or mistakes. The best one can do is to prepare. There are three tax audits to – correspondence, office and field.
Once you have received a notice that you are being audited, the first thing to do is contact the tax advisor for your business. Do not respond to the notice right away. It is best to wait for the professional opinion of a tax preparer so that you know how to respond correctly.
After responding, it is time to organize your business records. Classify it by year and by type such as pension plans, income and expenses among many others. If there are missing records, make sure everything is complete before the audit. In case of records that were damaged or lost due to fire or any other uncontrolled incidents, document that you have attempted everything to reconstruct it.
Make sure that you know the difference between intentional and unintentional mistakes. International mistakes are considered tax evasion while if you can prove that the error is unintentional then the tax authority will be more lenient.
Do not combine personal expenses with business records. This is why your business should have a separate bank account. Travel expenses should also be different for business and leisure.
In case your business record for the past few years have shown losses, you must prove to the tax auditor that you are doing your best to recover and make a profit. You can do this by showing expenses spent on marketing. Before an audit can happen, getting an audit insurance company is the best decision you could make for your business.