- August 25, 2018
- Posted by: Asheesh Sinha
- Category: Funding
As someone who owns a small business, you want everything to go perfectly, especially around tax season. Tax season can be incredibly frustrating and daunting, but when you get the notice that you’re going to be audited, it makes things even worse. Audits from the tax department have been the ruin of many small business owners and entrepreneurs, and many of these individuals have habits that they do all the time that they don’t think will hurt their reputation until they get audited.
In order to avoid a nightmare audit, it’s crucial to nix these four common habits.
Not Tracking Inventory
If you fail to track inventory, you never know what is being sold or what’s being purchased. This leads to not only a loss in inventory and money, but it can make the auditing process a lot more difficult because you don’t have the proper paperwork to give to the tax professional who is going through your inventory sales and expenditures.
Business budgeting software can only do so much, so sometimes businesses make the mistake of participating in card sharing. This involves using one subscription card for something with multiple people or businesses using the card to save money. While this is a great way to save money and it’s incredibly common to do, it is also illegal and goes against the terms of service of most companies offering the subscription. If you’re audited, and this comes up, it could result in a substantial fine or tax penalty.
Not Keeping Receipts
As a business owner, you must keep receipts for all expenditures and sales as much and as often as possible. Use these receipts as a way to prove that you bought or sold something legally, and this will come in incredibly handy if you ever get audited by the tax department. If you’re not already in the habit of keeping receipts, now is the best time for you to start.
Not Reporting Sales
It’s not uncommon for a business owner to not report certain sales. You might assume that the transaction isn’t big enough to report or that you need some extra cash without owing tax on it, but this can become a particular nightmare if you ever get audited and it’s found that you didn’t claim even a small portion of what you made.
You need to make sure that you have all of the proper paperwork and report all of your sales so that going through an audit is easy and quick. If you already do any or all of the habits mentioned above, it’s time to make a change and start doing things correctly so that if you ever are audited, there’s nothing to worry about. If you’re interested in learning more about potential mistakes or bad habits your business may have, check out our blog for information.