What if you are audited?

If you are audited, there is nothing to worry about if your return was prepared properly in the first place. To ensure that this is done be certain that the tax laws are properly applied and that documentation exists for all items on the tax return.

For example, if you are taking a home office deduction, make sure that the business area is used exclusively for business and that you are using the correct business percentage (business area divided by total area).

It is important to separate business expenses from personal expenses. The best approach is to have a separate business bank account and separate business credit cards, although this is not absolutely essential if transactions are recorded properly. If you give your accountant a summary, be sure you know where the summary amounts came from and that they are accurate. If you need assistance, have the accountant do a full write-up of all your transactions. That way you will be sure that the numbers are accurate and the backup will be there in case of an audit. Credit card charges should be deducted in the year of the charge, regardless of when payment is made.

In the event that you are audited, it is best to be represented by a professional. If all your data are properly documented and the tax laws were properly applied, the audit will be a simple matter. If not, don’t expect miracles. If your deduction can’t be supported by documentation, or if you made an error, the auditor will adjust your return. The CPA will of course ensure that you have the minimum adjustment. A CPA is not a magician, but he or she can make an audit almost painless for you.