The Tax Audit – Inevitable or Avoidable?
We all have to do it every year. After all, it’s one of the two things they say are for sure in life, right? And what is the biggest fear we have when it comes to filing our taxes?
The looming threat of an IRS audit.
One thing that makes it so scary is not knowing when an audit might come or what might trigger one. Scientists have said fear of the unknown could be the root of all fears – and a looming audit is full of unknowns.
So, I’m here to help alleviate some of that fear.
But first – I have a statistic to share with you that I absolutely hate. The majority of our new tax clients do not come to us from a place of planning. Instead, they come to us because they have received an audit notice of some kind…from the Department of Revenue, or Labor & Industries, the Department of Employment Security or worse – the IRS.
Tax audits are a real bummer, for us and for our clients, because these are often individuals and small business owners who said they “could not afford” to hire someone to help with bookkeeping or accounting services, and now they have to pay us to fix a problem
An Ounce of Prevention is Worth a Pound of Cure
Sadly, when we look back to figure out what it would have cost them to hire us in the first place…the professional fees, fines, penalties, interest and taxes always costs more.
Let me give you an example. Recently, someone who was not yet a client (they are now) came in with a DOR audit notice. Scared, he asked if we could help. He inquired about the process and was clearly under a lot of stress as we went through the introductory meeting.
In this first meeting, I ask a lot of questions, like:
- How long have you been in business?
- What is the audit period?
- Who has been filing with the DOR?
- Who has been keeping their books?
- Who has been reviewing the filings?
Unfortunately, his answers to those last questions were typical, and ones I wish came up less often. He said, “No one” because he thought he could do it himself. After all, he owns a small business – it was only started about two years ago – and he felt he could keep his own records to “save the money” instead.
Most of the time, when someone gets audited it is because they are more qualified to be in the industry they are in (the reason they started their business) than to file taxes and keep books. This is often done in the wee hours of the morning, reviewing spreadsheets and pulling your hair out while your vision gets blurry. (Sound familiar?) To this I ask you (just as I did him and countless other clients):
What is your time worth?
If you own a business, you might know the answer right away. What would someone pay to work with you for an hour? Or how much product could you sell with that same time? Or how many sales leads could you follow up on?
In many cases, you could generate a lot more revenue focusing on what you are good at and hiring someone to help with the stuff you are not suited for (or don’t care for).
So, what is my mind-blowing tip to help you reduce the likelihood you will be audited?
Invest in an accountant.
That’s it. Even if it isn’t us – you should have a professional on your team (and look into getting a good attorney while you are at it). Regardless of what business you are in, it is good to know someone has your back and can help you avoid the rocky patches (but be there to support you on the off-chance they come up).
Typically, when someone is being audited it is because they made a mistake. What is the best way to reduce or eliminate mistakes? Hire a professional of course!
I would be willing to bet that 9 times out of 10, the individuals who come to us after they have received a notice would not have been audited if they had worked with us before the fact; and that breaks my heart.
Investing in your business can be scary, but it is so important, and it can save you a lot of stress, cost and time in the long run. If you are reading this and wondering if you should make the call…please do. A good rule of thumb to help settle your uncertainty is: for every 2-3 hours you spend on your books, we can likely get it done in an hour. So, that makes it even easier to recoup the value in your time and business! What would you do with an extra 2-3 hours a week to invest in your business?
I would love to help you figure it out. The initial consultation is free which means you have nothing to lose and everything to gain. Let’s chat.