Bookkeeping to Prevent an IRS Audit
Many small businesses are starting to feel the pressure from trying to avoid being audited by the IRS. However, some of the owners aren’t aware of the necessary practices that can help them avoid being dinged by the IRS. One key practice to employ is bookkeeping. This is generally the foundation of the business’ accounting system. The person that you hire as a bookkeeper, and you can hire a bookkeeper or an accountant, it’s your choice, can save you a lot of time and stress in the long run. Let’s discuss the importance of bookkeeping within a small business to stay out of sight with IRS auditing.
What is bookkeeping?
The bookkeeper that is hired is in charge of a big task. They must record, or document and classify all of the account transactions that occur for the firm. They must also document the strategies that are involved when recording the transactions. Basically the bookkeeper must keep a smooth running program for the owner if the business. In addition to recording transactions they must also send invoices, generate financial statements, make payments on behalf of the company, and balance the books. This is similar to accounting but a bit different in that the accounting sectors more so analyzes collected information from bookkeepers. So what does all this mean in regard to being audited?
It is important to take into consideration whether or not you expect your business to grow in the near future or if you want to cut costs and do everything yourself. There are different options such as asking for a little assistance and managing the books by yourself for the most part, or finding a trusted associate. Note that financial management is a large part of the business world and if it is not carefully constructed and monitored, it can be a hindrance that causes headaches down the line. Improper management of the company’s finances is a sure fire way to get audited by the IRS, so make sure that your financial department is heavily organized and managed.
The IRS Auditing Committee
The audit committee at the IRS office makes use of Discriminant Function System (DIF). This program analyzes returns and flags them on an auditor’s report if they are do not fulfil the statistical norms. If the DIF score of a return is high, it will be reviewed by an agent to determine if it requires an audit. If so, a business owner will be notified of the auditing process.
It is absolutely imperative that all of your credit and debit transactions are properly recorded into the right accounts. You must balance your books, record all of your income and be sure not to take too many deductions. It is very important that your financial reports are accurate if you don’t want to be audited by the IRS. For this reason, proper bookkeeping will help small business owners avoid the hassle of an audit.
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