Reduce Your Chance of Being Audited In 10 Steps
Cash strapped and bankrupt governments everywhere are looking for more money. Your money, my friend.
Beware small business owner! It is one thing to make money. Now more than ever you have to have the smarts to keep it.
A longtime friend and advisor of mine, Dan White, is a highly successful tax representative. He has the following information to share on how to avoid the dreaded audit:
The following two classes of tax returns create the greatest interest for the tax department:
1. are self-employed and claim a lot of deductions
2. people who earn more than $1,000,000
You need to have your accounting system set up so you are AUDIT READY. Off the shelf accounting software does NOT do this. Auditors know that the better the bookkeeping, the less booty there will be for them. If you are audit ready they may decide to pass you by and go on to easier pickings.
Here are Dan White’s 10 recommendations for you to become less visible on the IRS/CRA radar screen:
1. When it comes to bookkeeping be very meticulous.
2. Make sure you include absolutely every form you receive without exception. This is the first thing to avoid being sloppy about at tax time.
3. File right in the middle of the rush but before the final deadline. Always appear that you are being one hundred percent compliant.
4. Include a partial payment if you are not able to afford the total amount of tax owing. It shows a measure of good faith and your case is less likely to move on to collections. Stay out of their crosshairs.
5. When it comes to claiming business deductions do not be greedy. Claim what you are entitled to but don’t be overly aggressive.
6. Never pay tax when you have a business loss. It is not only foolish but you will also end up being red flagged by the IRS.
7. Do you have a home office? Know the rules. Your office needs to be your centre of operations and there can be no personal use of this space.
8. Every expense has to be documented to prove that it relates to your business. In the absence of your statement of how the expense relates to your business, an auditor has the right to assume it is personal. In that case your business expenses are denied and are considered as personal expenses.
9. If you are just setting up a business, especially if it was a former hobby you will need to set it up as a business in every possible way. Show that your enterprise has the potential to be profitable; that you posses the necessary knowledge and experience; and that you are putting in the amount of time and energy necessary for it someday to succeed. You will need all of the following: business cards, letterhead, web site, business plan, marketing plan, business number, a budget, and a daily journal of activities. Your record keeping must be bullet proof.
10. Since YOU are legally responsible for your submission, not the tax preparer, make sure the person you use is not only skilled but ethical. Know that it is not in the tax preparers best interest to be aggressive since he/she is subject to serious civil penalties for overly aggressive tax returns. So keep good records, failing which your tax preparer will not want to include numerous expenses.
Dev Khalsa is a visionary entrepreneur and an expert in network marketing. Visit his blog to learn how you can succeed in your own home business online or click here to watch a video of Dev i
categories: avoiding an audit, audits, income tax, tax planning, home business, small business