Getting audited is never a good experience.
Even if you keep thorough records, having some review your business with a microscope can be uncomfortable. That’s why we’re sharing 4 ways to avoid an IRS audit.
Now this won’t guarantee that you never get audited. But it will make it less likely that you do, and also make it easy to handle should it happen.
The most important factor that influences whether or not the IRS chooses to audit you is how you manage employee expenses and business expense reimbursement. Use these 4 strategies to reduce your audit risk:
1.) Make A Plan and Stick to It.
One of the scariest parts of an audit is trying to find all of those receipts, which makes sure you’ve complied with an Accountable Plan. By setting up a digital expense system that contains digital copies of all expenses, receipts and bills, you can simplify this in an instant. You’ll need a system that you will use to make sure all physical documentation is converted and recorded – and you’ll need to stick to it. Having this in place will not only make it easier to respond to an audit, but can also help you avoid one if your filings are more thorough.
2.) Check Your Math!
Divide by… Carry the one… okay, math mistakes happen. But the fewer you have, the better off you are with the IRS. Because auditors are looking for inconsistencies, they view such mistakes as potential red flags. What’s the solution? Stay away from pencil and paper. The more you leverage technology when computing and recording, the less likely you’ll make a mistake. You can even use digital expense system that catches when the numbers aren’t lining up!
3.) Your Expenses Need to be Legit
An Accountable Plan require that expenses be “ordinary” – which means they are common or to be expected in your business sector. That means you probably shouldn’t include your new most recent Amazon Prime purchase as a business expense. More specifically, you need to make sure every time someone submits an expense that it meets the right criteria. You can find guidelines here.
4.) Track Mileage Digitally
Mileage claims are tricky when comes to an IRS audit. Typically, they are viewed as a grey area and can be disputed by an auditor – mostly based on a lack of record keeping. However, by registering all trips, routes and car rental details in a digital expense system you can protect your business and uphold any mileage claims made.
Auditors are looking to expose fraudulent activity. So if you’re intentions are pure, there isn’t much to worry about. That being said, getting blind sided by an audit is far from convenient. Taking a few steps to clarify reporting and improve how you keep records can help prevent this.
Not sure how to set up your digital expense system, or looking for someone to handle your accounting for you?
Talk with CODEaccounting today and learn how we can simplify your accounting so you can get back to doing what you do best – running your business!