Investment & Financial Articles
Title: How to Audit-Proof Your Business
Author: Collin Almeida
Article:
Police and auditors have one thing in common: they make even the
most honest, law-abiding citizens nervous. After all, who hasn't
felt their heart jump at the sound of a police siren close
behind them even if they are obeying all traffic rules?
Generally, the same feeling comes over people when the topic of
an IRS audit arises.
Most taxpayers fear an audit because they don't know if they are
adequately prepared. You may ask yourself: Did I save the right
documentation? Are all my deductions legal? Can I answer all of
the IRS's questions? For the home-based business owner, however,
these questions are even more pressing, so waiting for an audit
to test their preparation is not the best option. By following
some easy guidelines, they can take the guesswork out of keeping
records.
Obviously, every deduction claimed needs to be documented, but
many taxpayers aren't clear on what is adequate proof. The IRS
does require more than just a few jottings in a notebook, but
not much more. First, each deduction must be recorded with a
copy of an invoice or bill. For example, if you are claiming
your utilities expenses as a deduction, you need to keep a copy
of each month's bill. In addition to proving the expenses were
incurred, you must also prove they were paid. So along with that
utilities bill, you may want to staple the canceled check or
credit card statement that covered the charges. Receipts, bank
statements, and even invoices stamped "paid" also count as
evidence that the expenses were have been taken care of.
Along with documenting business expenses, all deposits must also
be adequately documented to prove that you are reporting your
profit correctly. If the funds are from payment for a service or
product rendered by your company, you should attach a copy of
the payment to the invoice it covers. Not only will this serve
as documentation for the IRS, it will also help you keep track
of paid and outstanding invoices from customers. Loans and other
sources of company income must also be accompanied by all
related paperwork.
Additional documentation is also required when a home-based
business owner keeps his or her children, spouse, or other
relatives on staff in order to claim their wages as a
tax-deductible company expense. For the record, always pay every
staff member by check and have each person keep a written record
of their work, including total number of hours, date of work,
and type of activity accomplished. In addition, you should also
request a written estimate from a professional for the same
services. For instance, if your spouse maintains your company's
web site, you need to find what a professional Webmaster charges
in order to substantiate your spouse's salary.
Besides keeping track of expenses, income, and wages, you must
also have proof that your company intended to produce a profit.
A business plan can serve as evidence that you are serious about
generating revenue with your company. The plan will also provide
written documentation of the expenses you plan to incur and will
help keep you organized.
Overall, the best way to ease your concern over an audit is
through preparation. By keeping records and documentation on
everything, you'll have nothing to fear if you are one of the
.5% of taxpayers selected for an audit.
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Discover little known but highly lucrative tax advantages you
can legally claim as a home based business owner by visiting
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Hidden Tax Dangers..." that shows you how to save $1000's in
taxes and avoid costly audits.
About the author:
Discover little known but highly lucrative tax advantages you
can legally claim as a home based business owner by visiting
http://www.homebusinesstaxsecrets.com Get the FREE REPORT: "5
Hidden Tax Dangers" that shows you how to save $1000's in taxes
and avoid costly audits.
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