5 tips on tax audits for small businesses in California

No one likes the idea of being audited by the IRS, but the reality is that many taxpayers will face this uncomfortable and sometimes tricky process. Audits may be as simple as a review, or as complicated as delving into previous tax years, item by item. While audits can be arduous, there are a few tips that small business owners in California can use to help themselves in advance just in case they find themselves facing an audit.

Tip number one is to keep stable financial records, preferably on a computer software program where files can be backed up and accounts reconciled. Tip number two is to record any bartering transactions appropriately, at fair market value. If you've filed a 1099-B, you will want to ensure that the proper documentation is in place because this is still considered income by the IRS. Tip number three is to not play games with money and keep businesses separate. When income and expenses from more than one business become entangled, your tax return -- and potential audit -- quickly gets complicated.

Tip number four is to have an audit trail established for all funds that are nontaxable. Keeping copies of cancelled checks and other transactions can dramatically ease the process of an audit. Tip number five reiterates not playing games with money, only this time with regard to reporting. It may go without saying, but transactions on your income and expense sheets should have a purpose and be legitimate, not solely for the purpose of the tax code working on your behalf.

Tax audits can be expensive and time-consuming. Many California small businesses can avoid being audited simply by following tips such as these, as well as maintaining a solid relationship with any outside financial sources. It is important that small business owners understand their rights and responsibilities, and know that help may be available to them should their tax audit situation move beyond their own control.

Source: Fox Business, "Audit Tips for Small Business Owners," Bonnie Lee, May 25, 2012

No Comments

Leave a comment
Comment Information

Contact the Law Office of Williams & Associates

For more information about our tax law services, or to discuss your tax matter, call our Sacramento office at (916) 488-8501 or toll free at (800) 684-7147. You may also send us an inquiry via email.

Contact the Firm

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Office Location:

3600 American River Drive, Suite 135
Sacramento, CA 95864

Toll Free: 800-684-7147
Phone: 916-488-8501
Fax: 916-488-8196
Sacramento Law Office Map