| A tax audit is usually not a welcoming experience for | | | | Because interest on business loans is a deductible |
| anyone in business. Whether it is in part or total, the | | | | business expense, the financial records will be |
| experience can be a minor problem if the audit is only | | | | compared with bank statements and other financial |
| about certain records, or a major dilemma in | | | | records to verify that the money on loan was actually |
| accounting for a complete audit of the business. | | | | used for business purposes. |
| If your business is notified of an audit, you will be | | | | Workers' classifications will be examined to assure |
| informed of which part or parts of your tax return will | | | | that all workers are classified properly. When a worker |
| be examined so that you can assemble the required | | | | is classified as an employee, the employer must make |
| documents. You must also make a decision as to who | | | | mandatory deductions and contributions to the proper |
| will represent you, yourself or hire a tax adviser. Unless | | | | taxing agencies and provide certain other employee |
| you are well versed in business tax law, it is advisable | | | | benefits, including unemployment compensation. |
| to hire someone with expert knowledge in the field. | | | | Contract workers, as a rule, are classified as |
| However, if you decide to represent yourself and | | | | independent contractors or self-employed workers |
| encounter a problem during the audit, the taxpayer "Bill | | | | and are responsible for their own taxes, with no |
| of Rights" permits you to request a suspension of the | | | | employee benefits. For this reason, data such as time |
| audit until you consult with a certified public accountant, | | | | cards, job descriptions, benefit plans, contracts and |
| tax attorney or until you are properly represented. | | | | other business records will be reviewed by auditors to |
| Although a professional representation costs money, | | | | ensure that independent contractors are categorized |
| you will be assured that the audit is done efficiently | | | | separately from regular employees. |
| and saves you time, stress and money. | | | | Your business payroll records, such as canceled |
| All available documents must be available for | | | | checks, tax returns, deposits and other business |
| examination to support several crucial areas of the | | | | records are reviewed to see if the data is processed |
| business that you reported on your tax return. | | | | in a complete, accurate and timely manner. Other |
| Beginning with income, your bank statements and | | | | information examined by auditors includes state, |
| deposit records for the income you reported will be | | | | federal and social security withholdings. Accounting |
| reviewed, along with sales records, receipts, general | | | | practices for custody of Medicare taxes, |
| ledger and other official accounting records. Proof of | | | | unemployment compensation, along with salaries and |
| gifts you received, valuables, an inheritance or | | | | bonuses paid to owners and officers of your business |
| exchange of goods or services you received instead | | | | are also reviewed to be confident they are justified |
| of cash, must be documented accordingly. Otherwise, | | | | and within industry standards. |
| the IRS could classify these as taxable income. | | | | Inspection of other business records may include |
| Accounting for indebtedness regarding your business | | | | accounting for such records as bank, customers, |
| will be examined carefully. Expense items such as | | | | suppliers and especially financial records regarding your |
| canceled checks, bank and credit card statements, | | | | tax reporting. Aside from business records, your |
| receipts, and other business records can be compared | | | | standard of living and personal finances may also be |
| with amounts reported on your tax return. Special | | | | inspected to compare your current lifestyle with the |
| attention will be given to debts or business losses, | | | | income available on your tax return in order to |
| charitable contributions, travel, meal and entertainment | | | | determine if they are consistent. A tax audit can be |
| expenses. Accurate records to validate these | | | | extended to anyone who is knowledgeable about you |
| expenses are essential to confirm that only valid | | | | and your financial situation. |
| business expenses were accounted for. | | | | |