Preparing For A Tax Audit This Year

3 words you don't want to hear at tax time: "Where's the receipt?" When the time comes, the burden of proof is on YOU, not the IRS. After handling 100+ audits, here's our bulletproof documentation system: The 3-Layer Protection Method: #1 - Digital Foundation - Separate business bank account (mandatory) - Dedicated business credit card - Auto-sync to accounting software - Real-time transaction categorization #2 - Enhanced Documentation - Digital receipt storage - Detailed transaction notes - Purpose of expense - Business relationship - Expected outcome #3 - Strategic Proof - Calendar entries for meetings - Email trails for business discussions - Travel Itineraries - Project connections - Client relationships Example: "Business dinner expense" is weak. "Dinner with John - $175" is ok. "Strategy meeting with John Smith (client) discussing Q4 campaign expansion - $175" is rock solid. Let's say you were going on a business trip. To get the most deductions possible (while being defensible in an audit), you need: - Detailed agenda - Business purposes - Expected outcomes - Attendee list - Follow-up items Take all legitimate deductions but document them properly. Protect yourselves at all times.

Recently, I went through an eye-opening IRS tax audit. Before you ask, yes we passed it but there was ONE key reason we did. Documentation. Anything the auditor wanted to see we could pull up instantly because we kept good records of everything. Another few things were; Ensuring all tax documents have correct naming conventions to avoid IRS discrepancies. And, if you receive a 1099 that should be reported under your business, make sure it’s correctly reflected on your tax return. A great tax preparer can help you here. Preparation and organization are key. Stay proactive and keep your records straight to navigate audits smoothly.

Let's talk about tax audits. Those are fun, right? No, they are not. I work with clients who have "audits gone bad" (or even worse, criminal investigations). It's ugly because you are in a position of proving yourself innocent. If you haven't been able to document the numbers on your tax return, the government will decide what the right numbers are, and you have to prove them wrong. How does a taxpayer increase the chances of a successful audit? Here are four things that can help: 1. Be quiet - Even truthful answers can hurt you when talking to an auditor. The goal during an audit is to provide information but NOT raise additional issues or questions. 2. Hire a forensic accountant - She is going to know how to answer questions and what documents will help you. 3. Prepare your documents - Start pulling together documents right away, but don't turn anything over until your attorney or CPA has gone through them. Do NOT volunteer extra data or documents to the auditor. 4. Do not let the auditor on site - You do not want the auditor at your place of business because they could overhear or see something they shouldn't. Meetings with the auditor should happen at your attorney's or accountant's office to help control the flow of information. There is a right and a wrong way to handle a tax audit, and trying to do it yourself or working with professionals who have never been down this path... is a recipe for disaster.