Your Guide To Preparing For A Tax Audit

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Your Guide To Preparing For A Tax Audit

Tax Specialists in Edmonton

So, you filed your tax returns within time and then happily went on a vacation to relieve the stress the season had left you with. But, on coming back, you saw a brown cover lying on your desk. The envelope was something that every business owner dreads – a tax audit notice from the Canadian Revenue Agency (CRA).

A tax audit notice is the last thing you want to see, especially when you’re done with the preparations and filing of your tax returns. When you receive a mail saying that you’re going to be audited, there are several questions that start erupting in your head – What went wrong? Had you missed any deadlines or did you miss out on providing some potential information? What will happen during the audit? And, the most important question that comes to your mind is – what next?

Getting a tax audit notice can trigger anxiety and fear. But, that’s hardly going to help. Firstly, getting a tax audit notice does not necessarily mean that you indulged in some wrongdoings because of which the representatives choose your business for a review. Human errors are inevitable, so, it could be some mistakes on your part, which prompted them to conduct an audit. Honest entrepreneurs should have nothing to fear.

Nonetheless, there’s some work that needs to be done to ensure you’re well prepared for the audit. From talking to a tax specialist to having records organized, there are many things to consider while preparing for an audit. This article will take you through various tips to help you face an audit confidently.

Hire a Tax Specialist

As a business owner, you may not understand the procedure of the tax audit and the legalities involved in it. This is especially applicable to those entrepreneurs, whose business has never been audited by the CRA. And, in such a case, when you call or respond to the CRA yourself, it may lead to mistakes and additional issues. Tax specialists or tax shelter accountants are trained in laws pertaining to taxation. They are well aware of the legal formalities, as well as the specific procedures, to be followed while communicating with the CRA. Tax specialists can also identify potential errors in no time, which you may have overlooked during tax preparations. Hiring these professionals can be highly beneficial, as they can save you from potential glitches that could otherwise cost you a fortune.

Have a Documentation System

Do you often find yourself searching a document for endless hours? Then it could be the poor filing system to be blamed. There are chances that you made a mistake with a figure that lead to the wrong tax estimate. Maybe this resulted in suspicion among the authorities, which eventually lead to an audit. Documentation is a vital aspect of running a business. Even though businesses are being digitized, there may still be certain documents in paper. And, they need to be organized. Don’t forget your accounting records and proof of transactions. If you’ve not yet had a proper filing system, then commence doing that now. Develop ways to keep your paper receipts, as well as important legal documents, in place. Make sure all your books of accounts, any spreadsheets, and other important information is well-organized and backed up. Finding the required information in no time makes things easier for you during the audit and even otherwise.

Gather any Missing Information

As mentioned previously, humans are prone to making mistakes. If you haven’t had a proper filing system in place, the chances are that you may have lost or misplaced certain receipts and documents. Gather all proofs and information to keep them handy when required. The CRA representatives usually call for proof of transactions, and if you do not have them, then it can cause problems. Also, if the notice of the tax audit mentions that you’re being audited for the previous tax year, then you’ll have to make sure you have records for the same year in place. Recollect, and if needed recreate, the records. For instance, if you have claimed interest expenses on mortgage, but lack information, you can call up the service provider and ask for details pertaining to the tax year in question. Once you’ve done that, organize it neatly, with the supporting documents for the audit.

Do Some Research

One of the best ways to be prepared for an audit is by understanding what the process looks like. If you know someone who has undergone an audit, then ask them to brief you on how it works. Finding out what the audit process is likely to entail, can help you avoid unwanted stress. Learning about other’s experience also helps you avoid mistakes that caused the others frustration during the audit. Apart from asking people, you can also do some research online, especially on the Canadian Revenue Agency site. Any information found can be valuable and useful during a tax audit.

Request Time in a Professional Manner

Typically, the Canadian Revenue Agency sets the date and time for your audit. It is always recommended to comply with their wishes. But, in case, you or your tax specialist cannot attend the audit during the set date and time, then you can negotiate another time. Be careful while doing this. Be polite and abide by the procedure asked to be followed. Being polite and professional will take you a long way. And, when you go for an audit, make sure you are confident and professionally dressed. Such serious matters requires a cautious approach, or it may result in problems.

Don’t Answer Unless Asked

When your business gets audited, you can be sure of certain things. First, you may have paid the tax properly. Secondly, you have made some errors on your part, perhaps unintentionally, which may be the reason for you being at the audit. Whatever is the case, don’t start explaining yourself as soon as the audit starts. Wait for questions directed to you and answer only then. Sometimes, providing extra information can work against you. Instead of being impatient, be confident and wait for your turn. Patience will pay you well during an audit.

As mentioned previously, it is beneficial to hire tax specialists. However, most entrepreneurs fail to hire one because of working on a stringent budget. But, does that really save you money? The advice of hiring a tax accountant or specialist is applicable not only during the audit but also while preparing your taxes. Let’s see why.

Why You Need a Tax Specialist

Filing income tax returns can be a daunting process. From analyzing books of accounts and financial statements and finding proofs to estimating tax deductions and credits, there are various things that need to be done. The entire process can be taxing and time-consuming. Hiring a tax accountant can relieve you of the tension. And, you will not have to worry about inaccuracy and mistakes in your returns.

Once, you’re done with that then you do not want an audit to stress you further. In case this happens, it is always beneficial to get some professional help. Since tax accountants and specialists handle client’s taxes and audit preparations on a regular basis, they can relieve you of the stress. Not only will they handle the tax returns well but also help you with the right suggestions when dealing with an audit. In addition to this, they can also analyze whether the auditor’s stance is right or wrong. In case of an unfavorable consequence, the tax pro can also help negotiate by estimating deductions and credits, which you may have possibly overlooked.

Your time and money are valuable for your business. Don’t put it at stake by overlooking the importance of having tax specialists during the tax season. And, if you’re hiring one, then make sure they have enough experience and wisdom to deal with audits. If you’ve received an audit notice or you simply need help with taxes, then you can get in touch with us at Altitude Accounting. We can help you with all your accounting and tax needs.