By Joe Dunbar, CPA
Are You Vulnerable to Tax Audits?
Auditors look for operations with lots of cash sales. They tend to select industries using employees who earn tips. The nature of the bar business is cash-based and employees earn tips. Both of these characteristics attract auditors.
In this new arena of increased audits, it is common to hear from various government agencies. The call is never welcome. How do you react when your state or federal tax auditor calls?
The Best Reaction
You should respond quickly to any audit call.Ask the representative exactly what records they need. Do not try to buy time since this is a red flag for a more intensive audit.Rapidly gather together and catalog all the information requested and promptly deliver the documents when and where requested.
Short and Sweet Audits
One sure way to reduce the length of the audit and any resulting fees and penalties is accurate records. In addition to the maintenance of proper books, auditors love to see a strong internal control system. Management with good accounting policies and procedures is far more likely to end up paying the correct tax.
The AccuBar system is capable of reporting on any time range.In addition to the date flexibility, it is possible to prepare a complete purchase history for any item.Most businesses close their books monthly.Any auditor with a set of monthly statements that tie to purchasing and inventory records (to the penny) will quickly ask for some sample invoices. After testing that the sample matches the detailed reports, the auditor will place greater reliance on the company books.
Once the auditor is satisfied the books are in order, he will proceed to matching book income to reported income. This process will proceed quickly.
Overall, you do not want auditors digging through many documents over a long period of time.They need to justify their time and expenses.If you make their job difficult, they will review more records, find more inaccuracies and charge you a much greater amount in fees and penalties. AccuBar’s thorough reporting can help you avoid that.
Liquor-serving operations face a common problem in tax audits: if the auditor does not believe the pouring cost number you are claiming, he will assign one that could be several percentage points lower. This discrepancy could cost you many thousands of dollars unless you can produce proper records that prove the PC you claim. A regular physical inventory is the only way you can justify your PC.
Wouldn’t you rather show them a neat set of books and demonstrate, using AccuBar, a thorough grasp of the inventory process?The time and money invested will pay off in reduced audit time. Also, your auditor is likely to note your policy of tight internal control. They may never audit you again.
Contact: Dave Grimm