A small business audit can tell you a great deal about the state of your bookkeeping, including its accuracy and compliance with the law. To consult with a CPA about your upcoming business audit, you don’t have to be a CPA yourself. The right CPA knows the right questions to ask you to get the job done right and reveal his findings to you in plain English. Here are seven tips fresh from a CPA on how to prepare for a business audit.
1. Get Accurate Numbers
Round numbers can only tell you so much about your business. To get in under the hood, as it were, you’re going to need some actual facts and figures. Rounding numbers or estimating not only fails to give you an accurate assessment, but it can also trigger an outright tax audit. To ensure you have all the numbers, you’ll need to conduct a thorough and accurate business audit, gather all canceled checks, bank statements, receipts, invoices, and sales slips. This includes credit card and debit card statements. If you paid for anything in cash, keep paperwork you can consist of in this reconciling. Make sure it entails the name, date, amount, and address of the one you paid.
2. Track Your Deductions
While you can deduct meals as business expenses, you don’t want to overdo it. Keep receipts for those purchases so you can pull them up in a business audit you conduct or a tax audit by the government. Include the names of those there were with you and the business nature of the event or activity. You must be able to prove that the given expenses were necessary and ordinary.
Be realistic about home office deductions as well, if they apply. While you can take tax deductions for a home office, again, you don’t want to overdo it. High home office deductions are a typical tax audit trigger. The space where you work in your home must be used exclusively and regularly for work and nothing but to qualify for the deduction.
3. Make Sure Everything is Legible
Neatness matters in business audits because clarity is at a premium. In other words, the whole purpose of conducting a business audit is to get clear about the status of your business, and sloppy work yields a sloppy result. Neat, tidy, and orderly work, by contrast, can help you put or keep your business on track to that same impeccability.
4. Collect Records
Never throw away your canceled checks, sales slips, and invoices as you will need them for your audit. You should bring all receipts, bank statements, and canceled checks in your business’s accounts into the picture. If you pay for anything with cash, be sure to keep clear and accurate records, too, so you can retrieve it for purposes like these. Also, bring all electronic banking records, such as credit card statements.
5. Collect Business Trackers
If you track any of your business’s activities using a diary, log, appointment book, or calendar, pull that out for your business audit too. They can help you identify where you were at a particular time, who you were with, and what you were doing.
6. Pull Equipment and Auto Records
Some business equipment typically used for personal and business purposes, known as listed property, requires you to keep certain records. If you have equipment of that sort, like a cell phone or motor vehicle, you want to be able to see how much of each type of usage, personal and business, that item gets. For lack of such a record, try referring to other projects on which you worked during the year or reconstruct it from memory.
You also want to keep track of all your business vehicles, especially if you use the same vehicle partly for personal use and partially for business. You can either keep a log, use an app, and collect your receipts in a folder.
7. Record Business Travel and Meal Expenses
Keep an appointment book or log of entries for when you travel and dine out. Note down the date, where you went, how long you stayed, your business relationship to the people there with you, and the event’s business purpose or activity. Keep receipts for every one of those excursions as well.
For a CPA in Charlotte to help you with your next business audit or Charlotte tax extensions, Scott Boyar, CPA provides bookkeeping services Charlotte business owners can count on.