It’s a new year, and that means it’s 2010 tax season. The Internal Revenue Service is about to kick into overdrive and start looking for reasons to audit individuals and businesses.
One kind of taxpayer that the IRS is extremely interested in is the small business, because there’s a substantiated belief that many under-report their income. What’s more, the department is running low on funds, and the way they replenish their coffers is by conducting extra-thorough and extra-vigilant examinations of our finances.
If you’re a small business owner, you might want to prepare yourself for an IRS audit. The good news is that there are some fairly simple steps you can take that could end up saving you all sorts of time, money and hassles.
Be Scrupulous
Want to know the best secret to protecting your small business from an IRS audit and any ensuing money problems? Don’t cheat. If you’ve got nothing to hide or be nervous about then why would an audit scare you?
It might take up some of your time but other than that, if your books are clean you’ll be fine. Heck, the IRS might even find a small error or two that could end up saving you money.
Be Thorough
Make sure your receipts, contracts, invoices, pay stubs and other business-related paperwork are all in very neat order. If you don’t have it already, buy budgeting software or tax software to keep your books straight. Along with effective software, make sure your personal finances are kept separate from your business expenses.
Be Proactive
“An ounce of prevention is worth a pound of cure,” as the old saying goes. If you takes steps to prepare for an IRS audit before it actually happens you’re going to be very glad you did once it’s over. Keep your books straight; know what the IRS likes and dislikes and how the auditing process works (you want form 3498); don’t make deductions that you know deep down are wishy-washy and will raise red flags and of course, don’t ignore any notices or communications from the IRS – if you bury your head in the sand about major problems then the rest of your body is sure to follow.
Pardon the pun, but being a small business owner is taxing enough as it is without facing an IRS audit. Nonetheless, they do happen, and facing that reality in a smart, organized, positive and forthright way is the wisest course to take. The good news is that it’s so much easier than the stressful and nerve-wracking alternative.