How Proper Bookkeeping Can Prevent from IRS Audit
IRS Audit;
An IRS Audit is the examination of legal entity’s or individual’s accounts and financial information to ensure that all the reported information is according to the tax laws and the amount of tax is correctly reported by the entity or individual.
How Proper Bookkeeping Is Important:
In the past, small companies and individuals mostly relied on the information produced by simple bookkeeping applications or internal accountants for tax purposes. But due to increase in the complicated information required by the tax authorities, these simple applications and bookkeepers often provide incomplete information in the tax return resulting in a high Discriminant Information Function (DIF) score. A high DIF score increases the chances of audit by the IRS authorities.
Most of the Americans, if not all, probably like to avoid the audit and there is a very little amount of people actually audited by the Internal Revenue Service. But once IRS decide to audit your accounts, there aren’t many options left for you to avoid the audit. However, if you keep your financial record accurate according to the laws and avoid the common errors, then you can easily lower your chances to be audited by the IRS authorities.
Proper Bookkeeping can help you prevent the IRS Audit in the following ways:
Accurate Calculation of Actual Income; The IRS does not waste time on audit if the agents believe that the reported entity has shown their actual income in the return after deducting all the allowable deductions provided by law.
The proper bookkeeping can give you an advantage by calculating actual taxable income after all the deductions supported by required documentation.
Accurate Calculation of Business Expenses: Any business or individual which does not keep proper record of their business expenses are most likely to report wrong amount of expenses to the IRS. If the agents found the pattern of expenses suspicious, they may turn the red flag and order to proceed the audit.
If you hire an experienced accountant internally or contact a third party services for keeping the record of your business, they will give you accurate figures for the expenses to report in your tax return. It is obvious that the accurate figures will have an accurate pattern, and as a result the return will be accepted as it is reported without being audited.
Claiming Accurate Amount of Charitable Donations: If you are making significant amount of contributions towards charity, you become eligible to get some deductions in your tax liability against those donations.
Proper bookkeeping can benefit you to claim those deduction by providing the accurate figures along with all the required documentations. So, even if you are claiming some extra ordinary amount against your donations in your return, there is a very low chance that IRS will make any objection as all the information will be supported by the necessary documentation.
Reduces Errors: Most of the returns chosen for audit by the IRS have a lot of errors which makes them suspicious. For example, if you write 3 instead of writing 7 or you forget to write 00 at the end of your income, these errors can mislead the IRS agents and make them believe that the filer is hiding something.
Proper bookkeeping can reduce all the calculation errors as you can cross-check your figures with the actual record. The returns with accurate calculations are most likely to be accepted by the IRS authorities without any objection.
Outsourced Bookkeeping By AD Bookkeeping Services
619-317-1442
