Benefits Of Audit Proofing Your Business

How many of you have woken up to DMs from some random guy inviting you to use their “method” and pay zero taxes? How many of you almost, or did commit tax fraud based on that random guy’s recommendation? Indeed, this is happening around us, including identity theft and so forth. The downside to it all is, if you happen to get caught up in this tax mess, your business might fail before it takes off. It will be selected for an audit where all the lies and shortcuts are exposed.

Shady tax professionals and accountants target you, small business owners, because they know you do not want to pay qualified professionals. However, paying less for a shady guy leaves your business vulnerable. It will not be audit proofed.

Last week, I spoke about how to audit proof your business, and promised to dive more into audit proofing your business this week. And here we are. I bring you the benefits of audit proofing your business. As you read, understand that this is the first step you are taking to protect your business. It is the first step to claim legitimate tax deductions. The next step you should take is to implement these ideas so that you can transform this knowledge into real action, and later, actual results. In case you need to hire a professional to help with the implementation, always talk to us. Our office is open to you via email or phone. Don’t go to night-time ‘professionals’ who promise you lies and lead you to commit tax fraud.

What are the benefits of audit proofing your business?

Below, I discuss the real benefits of audit proofing your business. These, you can enjoy if you hire a real tax professional to help you.

Win/Avoid IRS Audits

If your business transactions are all audit proofed, you will beat an IRS audit. More so, this increases the chances of avoiding the audits altogether. Audit proofing is a process that culminates in organized bookkeeping records. If you are serious about your bookkeeping, you will end up producing great financial statements. These carry concise information about income and expenses that you write in your tax returns. As such, accurate bookkeeping leads to accurate financial statements, which lead to accurate tax returns filed. If there is nothing suspicious about them, the IRS will have no reason to select your business for an audit.

Strong internal controls

Internal controls are put in place to uphold the integrity of financial and accounting information, promote accountability, and prevent fraud in your business. Examples of internal controls are documentation policies and physical controls, among others. I mentioned the above two examples because documentation is key when audit proofing your expenses. As such, internal controls will lay out policies regarding what happens to every receipt from your business purchase. They also lay out documentation procedures regarding all sales you make. This protects all financial information and creates a clear paper trail for all income and expenses. Physical controls deal with how you handle physical company items like locking up the cash register, who keeps the keys, and when it should be opened. Again, this helps to avoid you abusing cash at hand.

Internal controls, if strong, are a sign of good cooperate governance. Investors, potential partners, and customers like this. Therefore, audit proofing helps you grow your business either by expanding and inviting more partners or by attracting more customers, therefore, growing your revenue.

Never ‘lose’ cash sales

Above, I mentioned how internal controls help you uphold receipts and invoices. This is a part of audit proofing your business, and it helps you to never have cash or expenses that are unaccounted for. Such unaccounted income and expenses are sore on all audit findings. You do not want them appearing at any time.

Control, record your expenses

If your expenses are audit proofed, it means they are all recorded in your bookkeeping. Besides, you will have a clear trail where, how, when, and why you incurred them. For example, if you are audit proofing your business, you will always keep logs of all expenses you incur for travel and meals. These logs tell a story about how expenses were acquired. More so, the logs justify why the business is claiming. In other words, they show that the expenses were ordinary and necessary. This, helps you win an audit.

Besides winning in an audit, if you are recording every expense, you can track how much you have spent. You will also track how much you have left. In the end, it helps you plan by adjusting how you spend – after using financial statements to see which types of expenses you use most of your income on, and which ones do you need the most to grow your business. I say this because some businesses spend more money on expenses that do not grow their businesses because they do not track how much they spend.

Compliance with government agencies

Finally, audit proofing your business is all about ticking the right boxes, and when you do, it puts you in the right position with several government agencies. That is why I said this can make you win or avoid an audit at all. It will be nice to be doing business and never receive a letter from a government agency saying they are investigating you for flouting some rules. Therefore, audit proofing your business comes with several benefits. All you need to start doing is implement this.

People have also asked the following

     1. What you need to know about IRS audits?

IRS audits are random. You just do not know when, or how you will be audited. The best thing to do is to stay prepared and audit proof your business. Over the years, mail audits have been mostly used. When you receive your notice, respond as quickly and as accurately as possible.

     2. How Long Does It Take? IRS Audit?

IRS audits move at different paces, depending on the type of audit you are going through. Mail audits are pacey, followed by office audits. But field audits last longer than the rest, lasting for up to a year, or even more.

     3. How many people face IRS audits?

From past observations, the IRS audits around 1% of all tax returns filed. However, this could change given how much the IRS will be given more resources to upgrade their monitoring technology and hire more analysts.

     4. What to Expect During an IRS Tax Audit & How to Prepare?

The IRS will obviously review your tax return for the current year and the past years if necessary. Therefore, have all paperwork ready – things such as receipts and invoices. Also, hire a tax professional to represent you in the audit. It makes things easier.

     5. What are some tips for surviving an IRS audit?

Always start by hiring a representative before moving an inch. Together, you will prepare for the audit. And, during the audit, know your rights, but do not argue too much with the IRS agent – stay within acceptable confines, which your tax professional will know.

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