Self-employed business owners already have one of the biggest targets on their backs from the IRS. Constantly being scrutinized It is for this reason that it pays to take a few extra steps to minimize your chances of getting bitten if your return is selected for audit.
The main goal here is to keep adequate documentation so you can maximize your deductions with confidence. Nobody is saying to break any laws, we just want to make sure that you get every deduction possible and the best way to do this is to make sure that you are ready for questioning before the tax return is filled out. In the unlikely chance that you are selected for an audit, being prepared will make the process a quick and painless one. The Internal Revenue Service is more concerned with the folks that cannot back up their deductions than the ones who can.
Auto Expenses
• Mileage – keep a log if possible
• If no log, use your appointment calendar for proof of your meetings and therefore, your miles driven
• Can also use total fuel purchased during the year to calculate mileage
• Charge all fuel purchases to your business account
Advertising
• Keep invoices from advertisers as proof of your expenses
• Keep a copy of the ad placed or some samples of any promotional items purchased
Equipment/Assets
• Keep receipts, proof of purchase as your accountant will need these at year end when preparing your tax return
• Scan a copy of loan and lease agreements to your computer and email to yourself after deal is signed so you have a permanent electronic copy
Meals
• Keep a good record of breakfast, lunch and dinner meetings
• Write who you met with and what business purposes you discussed on the back of your receipt
Subcontractors
• Don’t pay a dime until you have a W-9!
• No w-9/no 1099/-deduction can be disallowed or payments can be re-characterized as payroll and become subject to back payroll taxes
Receipts not required if less than $75
• Per IRS rules, you are not required to provide receipts as proof of any purchases that are less than $75
Charge to business checking account
• When in doubt, charge any expenses that may be deductible to your business checking account-it is easier to reclassify any purchases as personal as opposed to going through your personal accounts and identifying any business expenses
Reconcile your books or pay someone to do them for you
• Unless you possess some formal accounting training, there may be some deductions and opportunities that are missed if you handle all of your own bookkeeping duties
If selected for audit, will need to usually supply:
• Bank Statements
• General Ledger
• Balance Sheet
• Income Statement
• Tax Returns
• Other Supporting Documents (Leases, Loans, Amortization Schedules, etc.)
Pay your taxes!!
• It sounds like a no-brainer, but one of the easiest ways to get on the IRS’s radar is to ignore your tax liabilities, once they discover that you are non-compliant, they have an open window to start digging further into your file
Neat stack vs. Box of Crap
• If you are selected for audit, showing up with a neat stack of papers that are already sorted and organized will make your audit process a less stressful one
If you do get a notice, call a professional!! Please contact MyCannabisAccountant.com before calling the Internal Revenue Service and discussing your situation. We have special contacts and can make the whole process a lot less stressful for you. Again, if you make sure that all of your deductions are properly documented when you file your tax return, you will find that being selected for an audit is not a problem at all. You can be confident that your deductions will stick and that the Internal Revenue Service will spend minimal time digging through your books and records before they move on to the next audit.
