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Could Your Books Withstand A Tax Audit?

Every employer should be aware of two components of SUTA: the annual wage base and the SUTA tax rate: Annual Wage Base: The annual wage base represents the maximum amount of wages subject to SUTA tax per employee for the year. For 2018, employers in California and Florida pay SUTA tax on the first $7,000 paid to each employee. Alaska, however, imposes SUTA tax on the first $39,500 paid to each worker. Once the annual wage base has been satisfied for an employee, the employer does not owe any more SUTA tax for that employee for the year. SUTA Tax Rate: These tax rates are based on varying factors, with the most common being whether the business is new, the employer’s industry (such as construction versus nonconstruction), and the amount of benefits claimed on the employer’s account. Generally, the more benefits claimed on the employer’s account, the higher the SUTA tax rate, which is why it’s crucial that you keep turnover at a minimum. Not Always Only an Employer-Paid Tax In most states, SUTA is an employer-paid tax. Three states — Pennsylvania, New Jersey, and Alaska — require withholding as well. If you have employees in any of these three states, you must withhold state unemployment tax from their wages at the state-mandated withholding rate and up to the maximum amount of wages allowed for the year.

Could Your Books Withstand A Tax Audit?

Tax audits can be time-consuming, taxing, and possibly expensive. Small business proprietors who might be navigating complex tax policies for the first time or who work in businesses such as restaurants where errors are easy to make are particularly likely to draw unnecessary attention for the IRS.

An audit doesn’t need to be a painful, endless, and invasive process if you follow these tips.

Back Your Claims

Having documentation that proves you qualified for all the deductions is worth it during the audit. However, not all taxpayers can maintain such documentation for 3-6 years.

In the event that you’re missing some documents, for instance, mileage logs or receipts, it might be possible to produce a reconstruction that will stand up to scrutiny by an auditor. For instance, if you didn’t maintain a mileage log and the auditor has doubts regarding your deduction, pull out the year’s daily planner and use it to generate a mileage log.

If you lack a daily planner, you could use letters, emails, or invoices to establish the days you met clients or used your vehicle for business reasons. When you issue the newly generated mileage log, explain to the auditor that the reconstruction is based on that year’s scheduling information.

Maintain Precise, Updated Records

Poor record keeping is common among small business proprietors. It’s advisable you consider accounting software to handle your books. You must install an updated program to ensure compliance. You simply need to enter your information frequently.

It’s helpful to communicate with your accountant frequently because he or she will identify the applicable deductions. Bear in mind that you’re liable for any errors or omissions, so it helps to be up to date.

Don’t Conduct Reconciliations Last Minute

Don’t wait until the end of the year to conduct reconciliations. Instead, do so quarterly or monthly throughout the year. This permits you to recognize, resolve, and investigate reconciling items in a timely way.

If you wait until the end of the year, you might not have sufficient time to resolve the matter before the audit and the effect of several reconciling items might make it more time-consuming to resolve.

Check in with the Tax Representative

Even if you have employed somebody to assist you through the audit, you can’t neglect the task altogether. You’ll find that accountants are frequently swamped between May and June, so it’s easy to overlook certain things. If you aren’t obtaining regular communication regarding the process, it’s important to follow up to ensure things are moving along.

You have Rights

Most audits are rather professional and reasonable during audits. If you’re unfortunate to have an auditor who’s overly hostile or abusive, you can request him to stop. The Taxpayer Rights Bill gives each taxpayer the right to obtain a courteous, prompt, and expert assistance in their IRS dealings.

Therefore, you don’t have to tolerate behavior that breaches those standards. If confrontation doesn’t help, obtain the manager’s name and call to file a complaint. The manager might or might not assign a different auditor but this will probably get the auditor to treat you more courteously. Similarly, you must be respectful and polite to the auditor, not rude. Remember, the auditor is simply doing his job.

Ask Questions throughout the Year

If an unusual transaction takes place or you’re thinking of entering into a new transaction, call your auditor. When you contact your auditor beforehand, they can help you with applying the appropriate accounting treatment the first time rather than rectifying it on the back end.

In addition, if you’re considering a new transaction, the auditor could enlist the help of state, federal, and local tax experts to offer a three-pronged approach to evaluating likely implications to the transaction before it takes place.

Final Thoughts

The thought of undergoing an audit can overwhelm any business owner. However, implementing these tips will help you prepare for a successful audit.

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