Tax is one of the most integral parts of any business. Without knowing the taxation part, you will risk your business and it may result in winding up your business. At the end of every year, businesses are bound to pay tax on the annual income, right. But the problem is not every businessman is aware of taxation part and they end up making mistakes. What mistakes are occurred and made in taxation is important to know? And how do you know about these mistakes? This can only be done via ‘tax audit.’
So are you aware of tax audit? If no, then this article is a complete guide on this for you. Just bear with me and let’s get started now.
What do you mean by tax audit?
In simple words, tax audit is simply a review of accountants of tax payer with business or profession from an income tax point of view like income, deduction, compliance with tax laws, etc. In other words, audit is an examination of your tax return by the IRS to check and verify your income and deduction are accurate.
Let’s talk more about tax audit through…
The types of tax audit (TA)
Tax audits are of different types depending upon the situation you’re in. So here are types of TA you must know about:
1. Correspondence audit
In the first case, you will get a direct letter from the IRS. You’re basically requested to give a proof of statement or documentation that will help higher authority to verify the information reported on your tax return. As per the study, this is the most common tax audit which every business with high level of charitable contributions receives.
2. Office audit
As the term suggests, this audit happens within office. This happens when have in-person meeting with tax auditor at IRS office itself. When this situation occurs? This situation generally happens when you have more than one issue in your tax return or when you have unusual transactions.
3. Field audit
In this case, you have face-to-face interaction with an IRS auditor. What happens is that they come to your CPA’s or attorney’s office to hash over the details of your tax return. In case, if you inventory involved, the examiner will also examine the actual inventory as well.
Sometimes, you get stuck in tax audit due to some risk factors. So how do you minimize the factor involved in tax audit? Let’s talk about it below.
Follow the tips to minimize the risk of a tax audit
If you really want to reduce the risk involved in TA, given tips are for you. Just read and follow them.
- – One of the first ways to minimize the risk involved in tax audit is to keep accurate detailed records. So if you’re questioned by any higher authorities, you can show them the proof.
- – Organize a bookkeeping system to create clear and accurate record of all transactions. Bookkeeping will also help you maintain and preserve the source documents used for accounting and tax preparation.
- – You can also hire a professional bookkeeper to help you record every business accounting book accurately. Otherwise, you can also avail virtual bookkeeping services in Los Angeles at most affordable prices.
- – To avoid any kind of risk, you must organize your everyday accounting books on your own without involvement of third-person.
- – Keep accurate and proper record of your finances by using bookkeeping and accounting software. This way you’ll be able to report correctly and accurately.
Guys, these above are best and smart tips that will keep you away from any kind of risk occurring in your tax. But make sure to take help of a professional as well.
Final wordings
Maintaining business taxation accurately is one of the main tasks which every business should perform. Without proper taxation, the chances are you may get stuck in future problems pertaining to business. Though I have already talked about tax audit, type of it, and tips to minimize the risk involved in tax audit. I hope you have understood tax audit completely. Also don’t forget to avail accounting services in Honolulu at most affordable price.
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