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tax day

Preparing for tax audit

Preparing for a Tax Audit…Checklist

There is no reason to be afraid of an audit. However, it is best to be prepared for an audit to make sure that it runs smoothly. Different types of audits require different preparation methods.

If a business is brought up for an audit by the IRS, there are several things you can do to prepare your business for audit. First, review the tax returns that are being audited. Make sure that you are ready to explain how you or your tax preparer came up with the figures in the return when you go into the audit. If you don’t know how your tax preparer came up with the figures, or you have any questions, you should contact your tax preparer prior to the audit for any clarification needed so that you are thoroughly prepared for the audit.

Organizing records used to prepare your tax returns yearly is a great way to maintain proper accounting before an audit. However, if you have not organized your records as you filed year by year, now is the time to organize them for the audit. Make sure that the person performing the audit has access to all records used to prepare the tax returns. For the audit to go smoothly, these records should be organized in a logical fashion. In addition to making an audit quick and painless, this organization will lend you credibility with the auditor, thus making the auditor take things in stride if a small issue does arise during the audit.

Your audit notice should tell you what documentation the auditor wants to see during the audit. Typically, auditors may want to see bank statements, canceled income checks, receipts for expenses, and your financial records. If you have a smaller business, you are not required to maintain a formal set of financial records such as journals and ledgers. However, the auditor may request to see any financial records you do have, and see your bookkeeping system during the audit. If your bookkeeping system in on a computer or otherwise electronic, make sure you take a printout of your financial records with you. If you do keep a ledger and journal for financial records, the auditor is entitled to see them and you should bring them to the audit also. In addition, you should bring with you any prepared financial statements so that the auditor has a clear overview of your bookkeeping.

If you don’t keep a formal set of financial records and you are missing a few receipts, take your appointment books, service logs, and diaries with you to the audit as well. The documentation in your appointment book, service log, and diary will substantiate your expense for deduction without a receipt, provided the expense can be proved to be reasonable based on the information in your personal records.

If you have a home based business, you will also want to bring with you to your audit any usage logs of “listed property.” This is anything that you use for business and home use. Usage logs show that you use these things for business purposes, thereby allowing you to take a partial deduction for that property during the audit if you have not already done so.

If you are in any doubt as to what information you need to prepare for your business tax audit, you should contact a certified public accountant to assist you and represent you to the audit representative.

 

At Peavy and Associates, PC we can assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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Tax Extension

Preparing for Tax Day…Are you ready?

Due to tax day deadlines being strict, and the penalties given for late tax payments, you should always make certain you’re prepared before (and for) “tax day.” You should start preparing your income tax return well before April 15th. Whether you are doing your own income tax return or you are getting the help of a certified public accountant or firm to prepare your income tax return, you should get a few things together before you begin or meet with the CPA.

The main thing you will need for your income tax return is proof of the income you made and the taxes you paid in the previous year. That includes income made through employers, interest from accounts, dividends from investments, income made through self-employment, income made as a subcontractor, and any other income. Student loans and other types of loans may also be considered income for the purposes of income tax, as can winnings from a lottery, casino, or other contest. If you are unsure what can be considered as income for tax purposes, you should contact a certified public accountant.

The other thing that is important is social security numbers for everyone you will claim on your income tax return. That includes social security numbers for your spouse and any children you will claim. Without social security numbers, proof of residence, and birth dates, you cannot claim deductions on your income tax return for these individuals.

The next thing that you should gather is what you will need for deductions. If you have a mortgage, your interest paid to the mortgage company may be tax deductible. If you use a vehicle for business purposes, you can claim a tax deduction for mileage. If you have children in daycare so that you can work, you can claim a tax deduction for that expense. You can also claim tax deductions for excessive medical expenses and charitable contributions.

If you are self-employed, you will need to also gather your receipts for tax deductible expenses. A tax deductible business expense is any expense that is used solely or primarily for the business you are involved in. The tax deductible expense must be documented in order to claim it, so any receipts you have, usage logs for computers and vehicles, etc. should be gathered so that you can take the highest deduction possible. If you have any doubts about what is tax deductible for your business, you should contact a certified public accountant to assist you in your income tax preparation.

Once you have gathered all of the necessary tax documents, you must determine which tax forms you need to file. If you are an individual with few tax deductible items, you can file a simple tax return. However, if you are self-employed you must also file a tax form called Schedule C. If you have a lot of tax deductible items, you will want to file a more complex tax return to itemize your tax deductions. If you are unsure what tax forms you need to file, you should contact a certified public accountant to assist you in your income tax return preparation.

Tax day can be a stressful time, but it doesn’t have to be. Gather all of your required tax documents as early as possible, and don’t put off the inevitable. Contact a certified public accountant as soon as you can if you are unsure what tax forms you need to file, or what tax deductions you can take. And, most importantly, don’t panic on tax day!

 

At Peavy and Associates, PC we can assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

Contact Us Today

Read more