How to Identify and Avoid Common Company Audit Mistakes

Posted by D&V Accounting Services
Apr 04, 2016
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A business process audit works by making sure that your business's financial information is accurate and up-to-date. It also assures your investors that they are putting their money into a profitable business endeavor.  

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But do you know that apart from that, the IRS also spearheads an audit? The IRS audit could be tedious and may entail serious repercussions in the long run. If you want to keep your business from being audited by the IRS, here is a business audit checklist to get you right on track: 


Common Audit Mistakes Done By Companies

  

  1. Outdated net loss reports.

The IRS takes business reports seriously - business net loss included. To keep the IRS from noticing your business (and seeking an audit), it is best to keep business net loss reports updated and filed accordingly. 

  1. Repeated late filing and payment of taxes.

Habitually filing and paying your taxes beyond the deadline set by the IRS is not a good practice as it puts you in a tight spot where the tax office is concerned. Make sure you follow requirements next time to keep the IRS from putting your business on its audit list. 

  1. Questionable employee salaries.

If the salaries paid to your employees are unreasonably high, beware. The IRS typically conducts audits on such businesses as this could be a cause for tax scams. To stay clear of serious tax office concerns, reassess the salaries of your employees and make sure you are not violating tax rules. 

  1. Unreasonable tax deductions.

Are you going overboard with the tax deductions you’ve been filing lately? Assess your actions and keep yourself from doing it again. As a rule of thumb, the IRS puts their foot down when businesses seem to be filing unreasonable tax deductions.  

Here’s a tip: To stay out of trouble, make sure the receipts and invoices for each business transaction are monitored and accounted for. 

  1. Resorting to tax abuse.

The IRS has a list of tax malpractices - make sure your business is not engaging in any of these. Such cases of tax abuse are those that run along the lines of shifting income to tax-exempt organizations to avoid tax payments. Do not adhere to these malpractices if you don’t want the IRS to audit your business. 

  1. Discrepancies in vehicle use.

If you are using a vehicle for both personal and business use, report the correct use of mileage for the latter. Otherwise, the IRS may find this questionable. At its worst, your business could get audited because of this. 

  1. Under-reporting taxable income.

Last but not the least, report taxable income accurately. Otherwise, your business could get audited, especially if it notices that your business is under-reporting. Note that this piece of advice is especially true in the case of cash-intensive businesses such as restaurants and salons. 

  

Being on the watch list of the IRS is not good for your business. To get your business finances on solid ground without being flagged by the IRS, it is important to comply with your tax obligations and the tax rules set by the tax office.  

 

Need help in Managing your Finances?

 

If you feel that you need more assistance in getting your finances in order, this is where we come in! With our trained experts, we can help you take the next step in managing your finances and plan for the success and longevity of your company.  

You can also grab a copy of our whitepaper Outsourcing: How to Make it Work to learn how we can make outsourcing engagement work for your growing business.   

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This post was first published on 26 November 2015 and edited 05 April 2024. Edited by: Aly Tagamolila     

 

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