Bookkeeping 101_ Preparing for Business Audits

The auditing process can be quite daunting, especially when it comes to business finances and annual taxes. While larger corporations normally have an in-house bookkeeper to handle all financial documents and transactions, smaller enterprises may feel they don’t need one. The revenue of a small enterprise is something manageable by a business owner in most cases—but it is not always the smartest choice.

When it comes to finances, there is never any room for error. Any wrong decimal point or digit value can damage the entire process, putting you at a loss. Remember that all kinds of documents that regard the use of money are important, and anything missing from an annual report can have the IRS come knocking at your doorstep.

Preparing For an Audit

Sometimes, there is a chance that the IRS will approach your business and ask for a business audit. For small businesses, the chance of an audit is around 2.5%. Although small, this is still a chance to get audited by the taxman—meaning you should get your finances in order. The easiest way to avoid being audited is to ensure the accuracy of everything on the tax forms, meaning no mathematical mistakes when calculating all the expenses and the revenue.

There are three types of audits that the IRS conducts, which are the correspondence, office, and field audits. Each has an increasing sense of urgency and seriousness paired with it. To help differentiate them, here’s a little information about each type of audit: 

Correspondence Audit

This is the most common form of audit that a business can undergo. It entails the request for additional information and documentation from you by the IRS. This will be done by mail, by which all required documents can be mailed to your local office.

Office Audit

This is probably the most serious kind of audit available. It requires you to visit your local IRS office to meet an agent and discuss issues regarding your business documents. You will need to bring the proper documentation to be analyzed by the agent.

Field Audit

A field audit is more comprehensive than a correspondence audit but is less serious than an office audit. With a field audit, an IRS agent visits your company and examines your business and financial records in person.

Things IRS Agents Watch Out For

Even if the chances of being audited are low, ensure that all values on tax documents are not rounded up when doing your regular bookkeeping! Everything must be in its pure decimal form to the last cent.

Also, make sure that corporate employee salaries are included in the documents being submitted, as well as all travel expenses and other deductibles. If your business has a few years of business losses, these must be included as well.

The Basics of Preparation

If you do not have an in-house bookkeeper, be sure to consult the help of professional bookkeeping services near you to be able to file the proper documentation. An expert at finances will be extremely helpful and can expedite the whole process.

The next step would be to get all accounts in order, so be sure to find all related paperwork and receipts for all financial transactions of your company. An itemized documentation related to all kinds of revenue, expenses, deductibles, and losses must be formulated to show the IRS the ins and outs of your company’s annual term.

Be aware of errors, and understand that there are actually genuine errors that can be made when bookkeeping. Intentional non-disclosure is different from making genuine errors, so be sure that the issues you encountered are highlighted to the IRS agent for their better understanding.  

Conclusion

The best way to go about an audit is to ensure that all bookkeeping procedures are done with utmost accuracy and promptness. By filing comprehensive reports each year with the help of a professional bookkeeping service, there are fewer chances of you missing out on important details and errors.  

Totally Booked offers the best bookkeeping services in New York. We specialize in the use of QuickBooks to give your business the best and most efficient processes to go about your daily operations. If you are looking for an easier way to handle your business’ bookkeeping needs, contact us to ease the burdens of accounting!