Why do Businesses Get Audited?
Here’s some quick and interesting information: The word, Audit, has basically been derived from a Latin word which means ‘to hear’. If you are thinking how this is pertinent to the formal examination of business accounts, then we have the answer. Auditing is the process of hearing out or discovering the inconsistencies that are present within the company’s financial information and ruling out corrective measures to resolve them. This is an extremely important tool for verifying the efficiency and effectiveness of a business’s financial standing.
Despite knowing the significance of internally and externally auditing the business, many business owners still take this extremely important responsibility flippantly. It’s high time that businesses realize the true worth of getting their finances audited. If you are looking for some rock-solid reasons as well, then keep reading:
If the IRS suspects or finds out that you have been hiding your income to evade paying taxes, then you are a prime target of auditing. Depending on the type of business that you are running, large chunk of the revenues you generate are paid in cash. While businesses carelessly ignore the cash segment of their income statement, the IRS has very hard-hitting stance when it comes such practice. Even the minutest suspicions and cynicism can ultimately lead to an audit.
Inability to Split Business and Pleasure
Many times, businessmen fail to understand the difference between personal and professional lives; not knowing that this practice can potentially lead to an audit. A family vacation or taking out business funds for home renovation cannot be written off as a business expense by any means. Furthermore, business trips are meant to be solely for business purposes and not pleasure. Such practices often raise eyebrows of IRS officials can make your business a major suspect for audit.
If, for any reason, you are unable to have a separate business vehicle to be used within office hours, then make it a point to maintain extremely accurate records of when you do so and when you don’t. In most instances, audits take place mainly when claims regarding the use of personal vehicle for business purposes come up. To secure your position in the event of an audit, have adequate information and evidences about how much mileage was consumed, information about existing and potential customers and why particular visits were conducted.
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