This week, my small business records were audited for three years for state sales and use taxes. I learned some important lessons from this experience, some of which might be worth sharing.
Lesson 1: If you run an honest business, do your best to track all of your paperwork and file your taxes on time, your auditors will quickly see that any problems are honest mistakes.
Lesson 2: If you hire an accounting firm, make sure your agreement covers you for any mistakes made by them. Make sure they sign your tax forms on the line marked “prepared by.” And make sure your accountant is with you during the audit to answer questions or provide clarifications.
Lesson 3: Kindness and courtesy always work to your advantage, perhaps especially in a tense situation. Answer all questions honestly and courteously.
One of the most important lessons I learned was that the auditors also make mistakes. In my case, they had no record of sales taxes paid during one month. Fortunately, I could easily pull out that bank statement and provide a copy of the cancelled check. So the first part of the lesson is that they might be mistaken; the second part is to have your paperwork as complete and organized as possible. Mine was all in cardboard boxes, but I knew where everything was.
No one wants to be audited, but if you’re in business for any length of time, you probably will be. Prepare yourself along the way by keeping complete, accurate records. Call your accountant; take a deep breath; and be open, honest and courteous.
Just like you are with your own customers…