Owning a small business can be taxing enough without involving the Internal Revenue Service, so take care to avoid small-business audits.
Small-business owners, especially sole proprietors, are at special risk of being audited. This is because many self-employment incomes can be underreported.
In 2018 the new government of the day brought in a new audit called net worth audits, as such they have Federal authority to examine bank records back as far as 1970- Additionally the Mainframe computers of CRA received significant Upgrades to AI and Data mining to uncover inconsistencies in your both your personal tax and business tax files.
While many tax professionals say it is unlikely the CRA will come knocking at your door, "if you're the one, it's not a good place to be," says Barbara Weltman, author of Small Business Taxes 2019 After all, audits cost time and money – two things most small-business owners have in short supply.
This year more than ever, small businesses have had to shift and optimize. Make sure you are on the right track with your finances by keeping them organized, timely, and accurate. We have compiled these tips to help your business avoid an audit and to support you through one.
Tip # 1 Keep Excellent Records.
Tip # 2 File Complete Forms
Tip # 3 Report All Income
Tip # 4 Keep Accounting Consistent (year over year.) Accounting treatment and Small business GAAP (Generally Accepted Accounting Principles)
Tip # 5 - Employee VS Independent contractors
Tip # 6 - Professional / Personal Expense Recording and classifications
Tip # 7 - Pay your tax dues on time. (Payroll, GST, Corporate Tax)
Tip # 8 - Phone calls, information requests and Desk audits.
Tip # 9 - Utilize An Accounting Professional to do your Business Taxes.
A: If in doubt of a transaction, you can submit a transaction to CRA for a ruling.
Once you get a ruling back, that is the final arbitrated decision and you must follow it.
For example: Not sure if a person is a contractor or Employee, submit the Subcontractor contract and CRA Review form- a ruling will be made and eliminates all doubts or misunderstandings.
B: Submit your business to a Pre-audit process- Ask Your Accountant if they provide such a service. The accountants at Analysis360° can assist with pre-audit assessments which will assist in the event an Independent audit is needed by a 3rd party Audit Accounting firm.
If you have any questions about your small businesses' finances, we are here to help! Please book a free consultation and we can walk you through the process and best practices.