Why You Should Always Be Prepared for an Audit
Audit: The word itself has a somewhat Hitchcockian infamy. No one wants to be audited. Just as no one wants to be attacked by a bunch of birds.
WARNING: Your audit suspense might be killing you.
Sure it’s no keeping your dead mother in a chair, but the fear of being audited is a real and true thing.
The question is why?
In order to quell the dramatic irony, Bill.com is here to help you understand the ins and outs of audits.
The Audit Basics
In order to prepare for an audit one must know an audit:
Audit — A systematic examination and verification of a business’ books of account, transaction records, other relevant documents, and physical inspection by qualified accountants AKA auditors
All audits are nerve-wracking, but it’s the external audit that instills fear into the hearts of man. The one that involves outside forces beyond your control — like the Internal Revenue Service (dun dun dun!)
The Impending Audit Threat
Attention all! The IRS is hiring. Sure, statistically, the IRS only audits 1% of submitted returns. But why would they hire hundreds of enforcement staff and auditors if they weren’t planning to audit. Is it blatant misdirection? Who knows. But don’t you want to be prepared if it’s not?
And new hires aren’t the only thing that’s increasing over at the IRS. Small business audits are their next target. Even the man himself, Commissioner John Koskinen, said that these new employees were hired to target both self-employed and small business operations. Not too good for the SMB crew.
The Audit Survival Guide
What’s the clear-cut way to survive this audit nightmare? Glad you asked — it’s going digital. Automated solutions can help facilitate the auditing process by keeping your important documents and transactions organized. Undergoing an audit doesn't automatically mean you did something wrong. Traditionally, audits are chosen at random. But beware the triggers that may set off an audit like inconsistent reporting, a record of discrepancies, and taking improper exemptions.
Getting a notification that you’re being audited is almost as bad as watching your neighbor cover up his wife’s murder. Almost.
If this happens to you, it is imperative that you respond quickly to the request for information. Digital records help keep you organized so you can provide a clean, clear record of your financial transactions. Whether paper or digital, your confidential information will be examined by the reviewer, so it's important to provide a workspace out of public view.
But what will these records reveal? And how will the IRS use them against my business? An auditor will ask to see your records in order to:
- Substantiate gross income
- Review sales tax data
- Verify tax classifications
- Analyze unexplained credits
- Check out tax liability or accrual
- Analyze capital asset invoices
- Review depreciation schedules
The depth of an audit is extensive which makes a proper audit trail highly useful. For example, most automated solutions maintain a detailed paper trail for every activity on the platform. So when the IRS asks for a robust history of a specific transaction, you’ll be able to provide that critical information with just a few clicks.
It’s a fact that digital processing minimizes errors when you are reconciling the books. Cloud storage offers more than just organization. It ensures the security and safety of your records, eliminates the hassle of paper document storage, and provides an automatic paper trail if you ever (gasp!) get audited by the IRS.
Plot twists are only fun in the movies. Don’t follow the MacGuffin, don’t get chased by a crop duster plane, and always be prepared for an audit.