You know the expression “Hope for the best but prepare for the worst?” Well, it applies to your tax preparation as much as anything else.
The IRS audits only about 1% of tax returns. That’s a tiny, tiny fraction. But if you are one among those 1% of audits, there’s one factor that impacts your ability to move through the process smoothly more than anything else: being prepared.
Organization can be a topic that puts you to sleep. And tax audits are never a popular subject. But the fact is that planning for the worst now pays off later.
There are key strategies to help you prepare responsibly as you go. Here are three tips for running your business with the IRS in mind.
1. Have systems in place.
The IRS often audits tax returns 2-3 years after the year in question is over. If you don’t have a good bookkeeping system in place it can be extremely difficult to prove what happened years ago. Keeping go-to systems running smoothly helps guarantee that you’ll be able to access the information you need when and where you need it.
2. Keep detailed records.
If you’re ever audited, you must be able to provide proof of deductions. It’s important to record both digital and cash transactions – yes, that means keeping track of receipts for cash purchases! Keeping detailed records is key to being able to break down your expenses and deductions to show exactly where your money has gone.
3. Get help if you need it.
Small business owners juggle multiple hats all the time. Bookkeeping is all too often one of the first tasks that falls through the cracks for busy owners.
But neglecting your bookkeeping can potentially have an incredibly damaging outcome for your business. If you’re audited and not prepared, the result can be a huge headache and owing back taxes – including interest and penalties, in many cases.
If your day-to-day bookkeeping is falling behind, there are a few routes you could take:
- Use bookkeeping software. If you’d like to handle bookkeeping in-house, consider using specialized software (like Quickbooks) to help you keep your records organized. Software built for bookkeeping has helpful safeguards in place that can alert you if something’s not adding up.
- Hire an accountant. If you’re not a type-A person, bookkeeping can be a huge challenge – even with helpful software like Quickbooks. Hiring out your bookkeeping is one way to take the weight off your shoulders and let you focus on your passion in business. A professional bookkeeper sorts through your business’s bank statements and receipts each month to capture and categorize every expense you’ve incurred. This keeps you organized and lets you sleep soundly at night knowing your business expenses are well-documented!
Running your business with the IRS in mind makes your life easier on many fronts:
Keeping organized records allows you to prepare for the worst in case of a tax audit, and understanding all of your business expenses as you go helps you make thoughtful business decisions.
If you're ready to talk about getting help with your small business accounting, we're here for you. Schedule a free, no-obligation consultation with us today and together we can figure out what's best for your business.