TO SURVIVE A TAX AUDIT
recently writing about the tenacity
of income tax small business auditors,
the phone rang and a worried client
informed me that "They are
coming to audit our business in
a few days." This was a surprise
to both of us, but my immediate
reaction to Jennifer (name disguised
to protect the innocent) was: "Well,
if there's one client I am not worried
about, it's you."
tax audit audit not only reflects
on the client's ability to keep
good records, but also on their
business and accounting advisor.
Over the years, we had worked together
to ensure accurate reporting. Jennifer
also has an excellent bookkeeping
background and keeps meticulous
records for her and her husband's
partnership business. However, that
doesn't stop one from sweating a
result of the audit was that the
tax department thanked Jennifer
for maintaining such good records.
Her taxes were filed correctly and
all her books and records were in
order. When I questioned Jennifer
as to the areas that the tax department
focused on, they were vehicle usage
and promotional meals.
didn't query the vehicle that is
used 100 percent for the business,"
says Jennifer, "but they carefully
scrutinized the records of the other
vehicle which I claim an 80 percent
business usage for. As nice as the
auditor was, he asked some pretty
sneaky questions, such as how far
it is between trips and why I used
the vehicle. I hadn't kept a mileage
log, but because the records were
in such good shape, he allowed the
full deduction, advising me to keep
one in future."
explained how thoroughly her vehicle
records were analyzed, particularly
the personal usage part. The auditor
even picked up a small accounting
error, although it did not affect
the tax returns. He focused on the
meal claim, which was relatively
small. "What type of meals
are in this claim?" he asked.
client meals, and some staff meals
when we were working late,"
know that staff meals aren't a tax
deduction," informed the auditor.
"They are a taxable benefit
to the employee. But since you have
claimed so few, we will let it stand."
He explained to Jennifer about putting
a client's name on the meal receipt.
I don't think he looked in her appointment
book to match up the receipts, but
this is common audit practice.
delightful experience could happen
to you-are you ready for it?
'Business Concerns' column is available
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