Do You Know Where Your Auditable Documents Are Stored?
As millions of American rush to the post office today, Tax Day, the team at Fireproof would like to remind you of a few important audit procedures, and provide some general information about tax audits.
What is an audit?
An audit is an inspection of an individual’s or entity’s books and records by the IRS. If you’re being audited, the IRS will send you a letter stating which type of tax audit applies to you. There are 3 types of tax audits:
Correspondence Audit — You don’t need to physically see an IRS agent for this type of audit. The IRS will request documentation, and you can mail it to them instead of delivering it in person. This is the most frequent type of audit.
Field Audit — If the IRS needs to verify information about your home or business, they may come to see it. Field audits usually involve businesses.
Office Audit — You must be seen in an IRS office and provide requested documentation.
What to do if your business should become audited:
• Be prompt
• Be respectful
• Be thorough and precise
• Organize your files according to the auditor’s list of requested records
• Be confident
• Have outside council, like a CPA, on hand in case you need additional support
• Never allow the auditor to keep originals of any files/documents
What to Keep In Case of an IRS Tax Audit
You should keep your tax returns and any supporting documentation for your tax returns for 7 years. Supporting documentation may include:
• home mortgage statements
• Forms W-2 and W-2G
• Forms of the 1098 and 1099 series and Schedules K-1
• receipts for employee business expenses
• justification of fair market value for any items donated to charity
• receipts for items donated to charity with value greater than $500
• receipts for charitable contributions (including cash contributions made after 2006)
• receipts for rental property income
• brokerage statements
• receipts for qualified education costs
• 401(k) statements
• IRA contribution records
• receipts for items sold at a gain
• home-office-related receipts
• pay stubs
• copy of the front and back of the check you used to pay your tax balance due, if applicable
How proper records management can help your audit go smoothly:
• Group documents by category then by year
• Follow a strict retention schedule
• Mark all boxes according to company retention policy
• Be knowledgeable of what your records say about you and your company
• Keep a quarterly index of all records
For more information on document indexing and retention schedules, visit us at www.Fireproof.com.
