How to Successfully Prepare to Have Your Business Audited

AdminAssist
AdminAssist August 3, 2020
7-minute read
Accounting Audits

When your business is going to have a tax audit done, it can be a very stressful time. That is why you need to know exactly what you should be doing in order to try and prepare for everything that will happen during an audit. Luckily, this article is here to help guide you on what needs to be done in order to ensure that you are prepared for what comes next.

Know That Not All Audits Are the Same

The first thing that you need to know is that there is more than one type of audit that you could be in store for. In fact, there are three different types of audits that the IRS could conduct on your business. 

The first of them is known as a correspondence audit and involves auditing your business via letter. If this is the type of audit that you are going through, then you can expect an official letter from the IRS that requests some kind of verification or additional documentation to help confirm what they think is a mistake. 

There is also a second type of audit known as an office audit, in which you are required to visit an IRS office and bring down some kind of specific documents in order to justify or demonstrate why you entered certain information on your corporate tax returns. 

Then there is the third audit type, which is called a field audit. This is by far the most common type of audit for businesses and involves an IRS agent physically visiting your staffing and recruiting company in order to do a thorough audit of nearly any financial forms or documents that they wish to see. Knowing which type of audit you are about to undergo will have a big influence on how you prepare. 

Put All of Your Records In Order

You might think that organizing your company’s financial files is just a courteous thing to do but it is actually so much more than that. When you have to organize your company files, there is actually the possibility that the IRS agent might have to spend significantly longer trying to find everything. This will drag out the audit process, which is not something that you want to deal with. Plus, the longer the audit goes on, the longer you will have to accommodate these agents, which means that you will have far less time to focus on other important elements of your business operations. 

That is why it is so important that you either put in the time or make sure to outsource your bookkeeping to a professional service so that all of your relevant financial records will already be properly organized and easy to find. 

Attempt to Reconstruct or Explain Any Lost or Destroyed Documents

There are going to be some scenarios where your business might not have a certain document anymore. After all, it is quite normal for paperwork or digital fields to either be lost, deleted, or thrown out after certain amounts of time or during a period where the company moved locations. So when this happens, it is not the end of the world but it is also important that you take the time to properly restore the document or explain what happened to it. 

A common reason why financial documents might be missing is that a lot of business owners assume that they don’t need to keep old financial records for more than a couple of years. However, it is important to note that this isn’t the case. In fact, the IRS has full authority to audit your company’s tax returns up to three years prior and can also collect back taxes for up to 10 years ago. Therefore, it is highly recommended that you make sure to keep copies of financial documents dating back at least three years but preferably even up to a decade ago, just to play it safe.

Remove Personal Expenses From Business Records

For larger staffing and recruitment companies, this likely won’t be an issue that comes up. However, if you own a smaller business, then there is the very real possibility that someone of your personal expenses could be intertwined with your business expenses, which can create trouble with the IRS. 

Therefore, it is of the utmost importance that you make sure to follow corporate financial best practices by making sure to have separate bank accounts, credit card transactions, and travel costs for your personal life and corporate expenses. 

Be Prepared to Show All Corporate Travel, Entertainment, and Meal Expenses

Another thing that you should do in order to try and prepare for your upcoming audit is to know which documents they will be most interested in looking at. As previously mentioned, an IRS agent can look at the vast majority of financial records that a company has. 

However, they tend to focus more on certain types of documents in order to streamline the auditing process. One common example of the documents that the IRS agent will likely want to see is the records for any travel, entertainment, or meal expenses claimed by the business. 

As a staffing and recruitment company, there might be times when some of the more senior executives at the company need to charge some of these types of expenses to the company. And if they have the proper documentation, then it should make this process go much more smoothly. You will want to make sure that they are all gathered, have the proper dates and times on them, as well as the amount that was spent and why it was a business expense. 

Get Help From the Pros

Undoubtedly one of the most important tips to follow is that you should always get help from professional audit preparation services whenever you’re about to be audited. At AdminAssist, this is part of our back office solution, and enlisting our services can make the auditing process go by a lot more smoothly. So make sure to contact us today and be prepared for any possible audits in the future.