Audit pro 411

Why am I being selected for an audit? Selection for an audit does not always suggest there’s a problem. The IRS uses several different methods: Random selection and computer screening  - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information. Related examinations  – we may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit. Next, an experienced auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examining group. Note: filing an amended return does not affect the selectio

How to Process Documents for an Audit An audit is a detailed scrutiny, analysis and verification of the accounting records, transactions and transaction documents of a business or an organization. The audit process involves the physical inspection of the documents and their comparison with book records and transactions to confirm the correctness of the recorded figures. When preparing for an audit, you need to counter-check and ensure that all the transaction documents, such as check books, purchases invoices, sales receipts, journal vouchers, bank statements, tax returns, petty cash records and inventory records are in order. 1 Gather and file all your business records -- you will need to confirm the correctness of your transaction entries in the general ledger. Label the files clearly and arrange them in alphabetical order, or according to dates, department or titles. Gather all your accounting books: sales books, purchases books and inventory books. 2 Proceed to verify that all the

5 Tax Preparation Tips Every Entrepreneur Should Know . Hiring employees vs. hiring subcontractors Your business is ready to bring on employees, but should you pay them as  W-2 employees or 1099 subcontractors ? It’s a good question, and one Seaman is asked a lot. Freelancers work in their own environment and are hired on a project-by-project basis. Employees work regular hours, which are dictated by the company, and receive regular checks. If you get the two mixed up, you could be in for a big surprise, Seaman says. “If the IRS determines the worker is an employee rather than a contractor, costly penalties are assessed and a large tax bill will result due to unpaid Social Security and Medicare taxes,” she says. 2. Keep your accounts separate No business owner is 100 percent sure if the business will float when it firsts opens, but that’s no excuse to run your business from your personal bank account. When you start a business, get a business checking and savings account and make sure