Small Business Auditing Tips: Basic Hacks for your SME
Has your business ever been audited? Undergoing the scrutinizing eyes of the Internal Revenue Service (IRS) is no walk in the park, but preparing your records thoroughly can help you in surviving a small business IRS audit.
Most business owners would agree that being audited by the IRS is a tedious and complicated matter. On top of making sure that all your business financial records are in order and that you are conforming to the rules of accounting for small business, you should also make sure to explain the records on your own.
How do I Survive a Small Business Audit?
Maximize Cloud Accounting Software
Your books are always at the top of the auditor’s list - make sure you have it in order.
While you can do bookkeeping on your own, you must remember that automated bookkeeping is more ideal if your business is growing and your books are becoming more complex. Artificial Intelligence and auditing is an essential part of the accounting landscape, and with the right support, you can bring innovative solutions to the table.
Cloud accounting software such as Xero and QuickBooks can cut the time spent on bookkeeping activities, minimize data entry errors and allow you to access your files 24/7. Moreover, using cloud accounting software to manage your books also makes it easier for the auditors to look through your record and assess your business financial data.
Record your Business Transactions
Though cloud accounting greatly works in keeping our tedious tasks at bay and automating manual ones, keeping tabs of your original invoice and receipts copies is still a must. Keep these files at hand so you can use them as proof of whatever it is that you have recorded in your books.
In the long run, asserting your claims and settling conflicts and disputes will become easier if your business transaction records are still intact.
Separate Business from Personal Accounts
Time and again, business owners are advised to keep their business account separate from their personal accounts.
If you are yet to adhere to this recommendation, now might be the perfect time to go ahead with the shift. The primary reason why you should separate your accounts is to avoid confusion and discrepancies - whether intentional or not - as you go about in preparing for a small business tax audit.
Keep an Audit Trail
Whatever you do, do not forget to prepare an audit trail. Also known as an audit log, it gives a documented history of a transaction which makes it more manageable for you and the auditors when tracing financial data. Having an audit trail is a great indicator that the financial records of your business are well-managed.
There is definitely more to small business auditing than meets the eye. While small business IRS audit can be an immense process, there are actually a number of things that can help you prepare and you surpass it. Once you conform to the rules and regulations mandated by the IRS for small business tax audits, everything will roll seamlessly.
This post was first published 14 April 2016 and edited 28 September 2020.