The idea of being audited is often feared by taxpayers for simple reasons, even if you haven’t done anything wrong on purpose. This could be because of mistakes in your returns and report.
These audits are time-consuming and very costly. It forces you to redirect resources to handle audits, which means it can cause your company to lose other potential gains. Adding the hassle that comes along with the process, you must do everything you can to avoid Audits for 2022 and years to come.
What is an Audit?
Payroll audits are analytics of a company’s payroll process to ensure that the process is up to date and legally compliant. This process is undertaken by a third-party individual (IRS-Internal Revenue Service).
These audits lead to catching those who are underpaying their taxes or carrying out other frauds. It means a collection of more revenue and punishment imposed on those who overstepped the federal and state law.
In simple words, audits keep taxpayers on the radar and threats of trouble if they have violated tax laws in one way or another.
Best Practices to Avoid Audit
Although one can’t avoid audits completely, there are some red flags you need to avoid. To reduce the chances of being chosen for an audit, here are some practices you can do:
Report on time
To reduce your odds of an audit, it is essential to file a complete return report on time. That means you need a full internal audit plan to keep it all on track and ready to submit before the deadlines issued by the IRS. It indicates the confidence of your organization in the accuracy of documents submitted and that it’s legally compliant.
Avoid Errors with numbers
This could be one of the easiest ones to avoid, but at the same time, to miss. It is essential to take the time required to cross-check the numbers to ensure they add up. The simplest accounting errors can make auditors think you don’t know what you are doing. Hence it could lead to audits.
Just because you were not in the wrong, doesn’t mean the auditors would take the matter lightly. Although it depends on how bad the accounts and numbers look, no one would want to get in trouble just because a few numbers didn’t add up. All this because you failed to pay attention to details in your job.
Report Electronically
When you submit your return by electronic means, errors are expected to decrease. Not only will this be convenient for your company to keep track and error-proof your files, but also makes it easier for the IRS. They like returns submitted electronically because it’s easier to analyze. By submitting returns online you represent an investment in the management of your finances and accounts, as it shows you are a conscientious operator.
Don’t Report a loss
It is basically begging to be audited when reporting a loss. When the IRS sees and notices net business loss, they are intrigued to find the reason behind it. You need to report your income, but not necessarily all your expenses, especially loss.
Document the report properly
In most cases, if it’s not documented, that means it doesn’t exist. From an audit perspective, if work isn’t documented properly, it is not done at all. Complete and detailed documentation supports the comprehensiveness of the procedures and their connections to results. These documents must have clear connections to files, policies, and procedures undertaken under federal and state law.
Sign your returns
To guarantee the truthfulness of your return and signify that you have read it completely, it is important to sign. Surprisingly a great number of people forget to sign. This could make the IRS wonder if you forgot to include any other document in your file, and initially lead to an audit.
Conclusion
Along with filing an accurate return, it is crucial to keep in mind that following federal and state laws are of utmost importance. There might be temptations of reducing taxes by iniquitous means, but remind yourself if it’s worth the consequences it has to offer.
