Tips for Preventing a Tax Audit for Small Businesses

Tips to avoid tax audit

A Tax Scrutiny Audit Notice can be a frustrating and time-consuming exercise for business owners. While honest owners have nothing to worry about, it’s still worth taking the necessary steps to avoid a tax notice. The most demanding are the face-to-face audits, which require sitting down with an auditor and reconciling income and deductions.

3 Tips to prevent a Tax Audit

Self-Preparation:

Many times a tax notice may ultimately turn out to be a cause for concern, it can still prove to be an inconvenient and vexing experience. Instant checks must be made whenever required by maintaining all necessary documents, data which is easily accessible, providing all the records. Having everything in order before filing returns correctly will definitely reduce the likelihood of receiving a tax audit notice.

On-time filing:

Late returns raise flags. It’s easy to file for an extension, so there’s little reason to miss the initial deadline. Any money owed is still due by the original filing deadline; the extra time is for doing the paperwork. By filing the returns on-time tracing the money and tracking the other expenses can be useful in avoiding penalties.

Be true:

Being upfront about the tax returns will go a long way to help with avoiding a tax notice. The Income Tax Department looks out for red flags on tax returns, so if something seems wrong with what has been declared or if the numbers don’t add up, then a notice will be sent. Better to avoid mismatches between incomes, investments, and use of exact security numbers. The thorough review must be done for obvious errors.

Realistic Calculations:

Use a calculator and double-check everything. Unusual or unrealistic itemized deductions may raise a red flag for auditors. By paying special attention to deductions that have adjusted gross income limitations such as the medical expense deduction will promptly file returns to show good faith in the tax audit.

Proper precautions need to be taken, there’s no way to guarantee that there won’t be a tax audit. Better to maintain thorough, organized records and accurate documentation as proof will lessen the chances.

To explore Sumopayroll, Sign up!!

SumoPayroll is an accurate and easy-to-use cloud-based Payroll and HR application It is among the top of India’s leading HR & Payroll software companies, packed with features that will help streamline your HRMS & Payroll.

Explorer

Form 12B

What is Form 12B?

Submitting Form 12B is a requirement for every individual taxpayer who joins an organization or company in the middle of the fiscal year, It gives

Read article