The word “audit” alone can inspire a flurry of fears. But it shouldn’t! If you prepare correctly—and file your taxes accurately—then you have nothing to worry about. We’ll help you ease those financial fears by reviewing the fundamentals of business audits.
What are audits?
Here’s a little mnemonic device to help you remember what audits are. When you think “audit,” remember that it starts with the letter “A” like the word “accurate.” Audit = accurate.
Got it? Good! If not, though, we’ll happily explain a little further.
Why have audits?
When a business needs their financials explored, that process is known as auditing. This can be for a benign, routine reason! Your business may even hold regular audits, just to keep everything on track.
However, if someone internally—or even the IRS—flags certain occurrences as unusual or fraudulent, then they may order an audit. That way, they can determine the source of the discrepancies.
Let’s take a breather
Before we get any deeper into the fundamentals of business audits, we should take a breather.
Feeling a bit anxious? Think of audits like your yearly dentist appointment. You go to make sure your teeth—or, in this case, your business—are healthy. And, you want to have a trusted professional examine any potential problems. That way, you have peace of mind that your business is operating efficiently.
Types of audits
If your business undergoes an audit, it will come from one of two source types.
The first kind is internal, or from within your business. These aim to explore the financials, like spendings and earnings. Likely, they will also take a look at how your business runs at multiple levels. That way, they can assess the overall efficiency—which can be costly if not operating correctly.
The second kind is external, such as one from the IRS. They will mail you a letter to let you know about the situation or give an in-person interview to explain the situation.
Don’t start sweating just yet! You can have a top-of-the-line business with picture-perfect tax filing and still get an audit. The IRS actually will request random audits from time to time.
On the other hand, they may also notice tiny discrepancies in your filing. Or, in some rare cases, they have flagged outright fraud. However, if you’ve done nothing wrong, then you should be just fine. So relax, and trust the experts.
What happens after?
Phew, it’s over! So, what happens after your audit? Well, you’ll get a report. It will detail findings the auditors observed. It will also tell you whether or not your records are accurate—and if there’s anything missing.
How should I prepare?
They say that an ounce of prevention is worth a pound of cure. We agree! You should prepare for an audit by:
- Keeping detailed records. Every receipt matters. You should file them away, along with all your financial documents. That way, you can hand them over without worry.
- Reading up on best practices. You should take time every year to read up on best financial and tax practices. Don’t forget to brush up on tax laws too!
- Not delaying your response. The IRS may contact you. If they do, respond ASAP!
- Hiring us. We know how to organize your financials! We also know how to file taxes in every state. Let us lessen the burden and get the job done right.
Whether they come from within your business or from the IRS, audits are important. They can help you determine how well your business runs—and improve your efficiency. Instead of biting your nails at the thought of them, you can stop worrying entirely. All you have to do? Hire the Greene & Vaughan team! After all, one of the fundamentals of business audits is having knowledgeable professionals on your side.