Do you file your personal and business tax returns each year, confident that you’ll never be audited?
While you have reason to be confident – the odds of an audit are quite low – you should still be wary of the potential. This is especially true for the self-employed, such as business owners, and companies that deal primarily in cash, like laundromats. The Internal Revenue Service might come calling this year, and it is always a good idea to know what to do in the event of an audit.
With that in mind, here are a few things that any laundromat owner should know about audits heading into the heart of tax season:
“Laundromats are at a greater risk for an IRS audit.”
Self-employed are at a higher risk
The self-employed are at a higher risk of audit compared to more traditional wage-earners. According to NOLO, this risk is even greater for cash businesses, like your laundromat, or even restaurants and bars. The IRS feels that these types of organizations have an easier time hiding income.
Assuming you were honest with your tax filing, you have little to fear from an audit. However, the process itself can be time-consuming and costly, so it is smart to be prepared to streamline the proceedings.
NOLO explained that the IRS will want to know a number of items, including:
- Business sales and receipts
- Cash transactions
- Home office expenses
- Business entertainment expenses
- Payroll deposits
Your best defense is sound record-keeping. No matter the odds of an audit, document everything related to your laundromat. If an auditor comes calling, you’ll have the relevant documents at hand.
How to respond to an audit
Your first step in response to an audit is to be open and welcoming. Trying to lock out the auditor will only do more harm than good, and the end result will only be a delayed process.
As you prepare, begin by gathering all relevant documentation – this can include items you may not feel are pertinent. It never hurts to provide as much information as possible. If you need to contact vendors and other businesses for receipts, feel free to do so, but remember that you may be out of luck.
“Record-keeping can be your greatest ally during an audit.”
“In some cases, you may be able to go back and get receipts,” Barbara Weltman, editor and small business advisor, told Forbes magazine. “But in other cases, it may be too late. For instance, in order to claim a charitable contribution of $250 or more, you needed to get a written acknowledgment from the charity at the time you made the donation.”
If you can’t prove your claim, then your smartest course of action is to simply provide the IRS with additional money, Forbes noted. However, feel free to ask if other forms of documentation can work in your favor. Perhaps a business calendar shows you were in a meeting in another state, even if you don’t have receipts for travel.
Remain calm, cool and collected
An audit isn’t a fun process. Even so, you must remain calm, cool and collected as you work with your auditor.
This pertains to your organization and record-keeping as well. As you gather up the required information, make sure it is stored neatly. An auditor will have a harder time analyzing your files – and proving you were in the right – if you hand him or her a jumbled stack of papers.
Overall, you need to keep in mind the importance of year-long preparations for tax season. Even if you believe an audit is unlikely, having the documentation and preparations in place ahead of time will help you save money, time and keep the IRS at bay.