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How Can You Protect Your Business in An Audit?

The IRS is using a more aggressive audit technique for small business owners and it's costing entrepreneurs 💲

There's a reason a lot of business owners are scared of the IRS - taxes are one of the biggest expenses we face as entrepreneurs

But that doesn't mean you can't plan ahead and be prepared...

That there's no hope if you become the subject of a tax audit...

You just need to plan accordingly and know your rights as a taxpayer. As a business owner you should have safeguards in place to protect you from techniques like these!

I know what you may be thinking...

"Whitney, that's great, but what technique are you talking about and how do I protect myself from it?"

Here's the details:

✨The IRS has been asking small businesses to provide backup copies of their bookkeeping files. As in the whole ten+ years worth of your business records in a nice neat package for them....

Here's the problem with that:

❌ This gives the IRS an easy way to check your records against your tax returns, even for years that are not currently under audit - the perfect way for them to check if they should expand their audit to include other years, other items, etc

❌ Most business owners want to cooperate with the IRS, but not at the expense of giving them information not relevant to the items/years under audit

❌ Your bookkeeping file contains so much more than just a P&L and a balance sheet... There's information on items that have been edited, bulk journal entries, deleted transactions, etc. Without context these alone can raise red flags on bookkeeping quality - even if they are for legitimate reasons

❌ You're essentially giving the IRS unrestricted access to your financials to explore and question as they please

So how do you protect yourself from this new trend?

🦄 Ideally your books are ironclad... we get it, that's not always a possibility. Especially when looking at historic books. So what if they aren't perfect? Or even if they're perfect what if you're not willing to hand over your company's full historic financial history with all the details? (Which as far as I'm concerned is completely reasonable)

✅ Get a plan in place to get your bookkeeping system solid and accurate moving forward. I get cleaning the books up for prior years is not always cost-efficient, but starting now sets you up for success in the future - and an easier time navigating a potential audit down the road

✅ Utilize a bookkeeping system that either does not easily produce whole system backups or that allows you to condense data for prior years. This helps you comply with record requests in a way that also limits the view of data to the information requested/relevant to the years and accounts under audit

✅ Work with the auditor.... I know I'm probably getting a lot of eye rolls right now, but let me explain. The auditor wants to close out your case as efficiently as possible. They're graded on their ability to quickly close cases - it helps the IRS generate more money for every dollar they pay an auditor. They actually run this part of the IRS like a business. So ask the auditor what information they are looking for, what formats you can provide them in, etc. Maybe they just really need an expense account detail in an excel sheet instead of the format you provided.

Finally, if you're not sure where to start when it comes to implementing these safeguards in your business. Or if you're looking for an expert to help you protect your business we have your back!

Feel free to comment below or message me privately to get more information on how you could protect your company in an audit, explore your tax savings opportunities, and increase your company's financial health. You can also feel free to snag a free consultation with me here



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