Prepare and Equip Yourself with Business Tax Audit Solution

If you are a small business owner, you should be aware that small to medium sized businesses are the CRA’s easy audit target because of the facts that these businesses do not have the resources to audit proof their books like the large enterprises.

Small business owners therefore should become more proactive in understanding the risk and the prevention of tax audit so they are better equipped with tax audit solution when tax audits do happen someday.

To get yourself prepared for tax audit solution, you should learn that during a business tax audit, a CRA auditor may take a look at various items in your tax return and business records such as your income, the deductions and expenses, loans and interest, employee classifications, payroll details and records from your tax accountant.

To develop strong tax audit solution, you should know that CRA will compare your deposits and the bank statements to the income that you have shown on your tax returns. They may review all the invoices, receipts and sales invoices and other bookkeeping records. You may have to keep a record of the gifts that you have received of money or assets through inheritance. If you do not show proof, the CRA may categorize these as income and tax you accordingly.

To be prepared for tax audit solution, you may have to keep the records of your deductions and expenses A CRA auditor may like to compare the cancelled checks and paid bills to the deductions and expenses that you may have reported on your tax returns. They are likely to pay extra attention to the debts reported or your business losses. They will also take a look at the charitable gifts that you have made along with the meal and business travel expenses as entertainment allowance. It will do you good to keep a travel log so that you can substantiate your travel and entertainment expenses so that you can prove that you have deducted the legitimate business expenditure.

Loans and the connected interest also play an important part in your preparation for tax audit solution. A CRA auditor may look at the loan paperwork, your deposits, bank statements, credit card statements and cancelled checks to satisfy that you have actually used borrowed money to cover your business expenses. This is vital because you may have deducted interest on all your business related loans.

CRA will check on your employee classifications on your tax returns and check the information against the time cards and job descriptions, their contracts and other relevant business records. They may pay special attention to independent contractor classifications as many businesses tend to classify regular employees as contractors sometimes.

Payroll also plays an important part in the protection package for tax audit solution. CRA auditors can check on business records concerning payroll and review information that documents federal payroll tax withholding. They will also look at CPP and EI withholding amount.

Finally, a CRA auditor may not spare even the records kept by your tax accountant or your tax preparer. This may also include the bank and other financial institutions in their purview. They may sometimes check the records of your customers and suppliers.

No one likes to receive a Audit Notice from the CRA. A tax audit is something that people like to avoid. Yet, being aware of what a CRA auditor might be searching for can make a difference to your tax audit solution and between minor difficulties and major hardships.