What’s the best way to prepare for your small business tax audit? Assume it's going to happen to you in the first place, says CPA Nate Byers, who is also a financial planner with JBC Wealth Advisors, LLC in Madison, Wisconsin.
While Byers says it’s a well-known secret that budget constraints inhibit the IRS’s ability to conduct too many audits, they do happen. For that reason, Byers advises small business owners to maintain meticulous records. If nothing else, keeping accurate records throughout the year will be of great assistance when tax preparation time comes.
Types of documentation Byers advises small business owners to carefully maintain include:
* Annual meeting minutes for your business to support activity reported on your business tax return(s)
* Accurate, up-to-date bookkeeping
* Receipts for expenses, particularly travel, meals and entertainment
* Loan documents between you and your entities for any loans between you and your entities
* Agreements to buy or sale assets, such as real estate, equipment and vehicles
* Agreements between you and your entities (or businesses) for services performed by or for your company
* Agreements between your entities (or businesses) for services performed by one of your businesses for another one of your enterprises
* Summary of business activities performed in your home office
* Percentage of your home used for home your office
* Mileage logs to support the business use of your vehicle
While the list above is geared towards small business owners, some employees who are not reimbursed for expenses need to maintain similar documentation. Byers notes that a comprehensive tax bill is currently being contemplated by the U.S. Senate that may negate the need for some of this documentation. For example, as proposed, the tax plan will impact a business owner’s ability to deduct certain business expenses.
Especially in light of the proposed tax overhaul, Byers suggests small business owners consult with a tax professional to ensure they comply with new tax laws. That could spell the difference between raising red flags for the IRS to ponder and the joys of not attracting its ire.
Tami Kamin Meyer is an Ohio attorney and writer who tweets as @girlwithapen. She is Marketing Chair of the American Society of Journalists and Authors.