No business owner looks forward to a letter from the taxman requesting a closer look at the books.
If you’ve received an audit letter – an official request by the tax authority to review your
accounts and confirm your taxes have been paid to date – don’t panic. Prepare.
These four steps will help you get through the process with minimal stress and the best
possible outcome.
Respond promptly
If you file your taxes reliably and pay on time, there’s a good chance the government tax
office contacted you for a spot check.
In this case, all that may be asked is that you provide receipts and answer a few questions.
Give the tax office the information they’ve requested promptly so they can close the file
quickly, and you can move on.
If an on-site audit is required, you can’t avoid the inevitable. Call to confirm the date and
request any information the auditor will need to help you prepare.
Responding promptly and cooperatively every step of the way is the best strategy for getting
through an audit. Reacting defensively or unprofessionally can invite more probing
questions.
Seek professional help
Get in touch with your accountant as soon as an audit has been scheduled for advice and
support. And if you’ve been handling the books on your own, now is the time to consider
hiring a tax accountant. Hopefully, you have outsourced a reputable bookkeeping firm that
keeps great records and understands your finances.
A tax accountant can explain the audit process, help you get your books in order, and offer
personalized advice to help you prepare.
You may want to hire a tax lawyer if you have concerns that are beyond an accountant’s
scope – if, for instance, you have unfiled returns, under-reported income, understated tax
liabilities, or if you can’t validate all of your expenses for the tax year in question.
Many tax lawyers offer a free consultation and can provide peace of mind by explaining your
obligations and rights, and ensuring those rights are protected.
Get organized
An auditor will ask you to provide receipts that prove you qualify for any write offs you’ve
claimed. On the day of the audit, be ready with your paperwork and be prepared to answer
any questions.
Being organized and prepared shows you’ve done your best to report your taxes accurately.
If your papers are in good order, and you don’t raise any red flags, it’s much more likely the
auditor will wrap up once the audit’s basic requirements are met.
As a word of caution, only provide the auditor with the information they’ve asked for – no
more, no less. Offering more explanation or “proof” in the hope of avoiding further questions
may backfire, raising new ones. Stick to specifics.
Pay quickly
In the best possible scenario – your records are in order and you’ve been conscientious
about paying your taxes – an audit won’t lead to any unpleasant surprises.
If, however, an auditor finds that you do owe unpaid taxes, unless you have a solid reason to
challenge the auditor’s findings, pay what you owe immediately.
You’ll avoid accruing additional penalties, interest, fees and payments. Perhaps more
importantly, you’ll be able to put the audit behind you so you can get back to focusing on
your business.
Final thoughts
A final word to the wise: if you do try to fight the taxman, before pursuing legal action weigh
the cost and benefit. Legal fees can add up quickly, so be sure the amount requested by the
auditor - including interest and penalties - is worth what you’ll end up paying in legal fees.
Before you get into this position – outsource a bookkeeping firm. Work closely with them to
ensure documents are properly recorded and stored. A great bookkeeper is worth her
weight in gold.