When you decide to start your own business, you go into it well aware you’ll have to do certain things. Firstly, you’ll need to work hard. Secondly, you’ll have to do a lot of planning. Additionally, there will be a fair bit of accounting to be done. One thing which many new business owners consider is their first sales tax audit. So with that in mind, today I’m sharing some tips to help you survive your first sales tax audit.
*This is a partnered post
Surviving Your First Sales Tax Audit
The first thing you need to know is exactly what the Audit is and why it’ll happen. According to Wikipedia, it is:
“The examination of a company’s financial documents by a government’s tax agency. To verify if the proper amount of sales tax has been remitted to the proper authority. Bob Meighan from Huffington Post stated that “most people don’t realize that only 1.1 percent of individual taxpayers receive an audit letter every year. If you are one of the few people audited, you most likely won’t have to come face-to-face with an IRS agent.”
The good news is that the 1.1% of individual tax payers will be audited, so you may be lucky and avoid it for a few years. However, it could happen at any time, so it’s important to keep your accounts in order at all times.
The first thing you should do is make sure your paperwork is all in order. This means keeping your corporate book, graphs of records, business government forms, bureaucratic pay, and other financial records accessible and organised. Additionally, make sure you always balance your books honestly and thoroughly. The tax inspector may well pick holes in your files, looking for discrepancies.
Time is Money
The actual length of your audit will vary from one business to another. With this in mind, it’s important to expect it to take a good while. As an example, It can take anywhere between 1-6 months to complete a full audit. This is from the initial request for information, to the assessment and potential appeal point. An appeal will of course add more time on. You may want to lease with a tax consultant if you’re worried.
Considering A Review
If your audit shows you’ve not paid enough tax, you can always appeal the decision. Your business’ tax documents will be investigated even more thoroughly at this stage. So only consider a review if you are completely satisfied your business has not been “cooking the books”.
Bob Meighan shared this myth on The Huffington Post…
“I am more likely to get audited if I do my taxes myself…” False. In fact, the IRS states that returns e-filed using tax software are 20 times more accurate than paper filed tax returns. In addition, online tax preparation companies often include some audit protection in the cost of the software.”
Finally, if these tips have helped you, why not check out my post on surviving self isolation when self employed.