Tax Audit Checklist: Don’t Let the Next Audit Take You by Surprise

    By | Small Business

    tax audit checklist hero

    Audits are no joke. They’re stressful, time-consuming and costly if you’re found to be out of compliance.

    Odds that your business will be targeted for a sales tax audit are greater than you think. To make up budget shortfalls, states are hiring more auditors and keeping them busy. No need to panic, though. We’ve prepared a checklist to assess your compliance readiness.

    By understanding where you have sales tax obligations, you will be better able to assess your risk in this audit (and future ones) and be proactive to avoid costly fees and penalties. In other words, should the auditor come knocking, you’ll be less inclined to bolt the door.

    1. Know Where You Owe

    Sales tax varies widely by state, industry and even by the types of products and services you sell. This complexity increases as your business grows. Nexus laws now apply to online and out-of-state companies, not just those with headquarters, warehouses and other physical plants in state. To see if your compliance obligations have changed, ask yourself, do you:

    • Plan to add locations or remote employees
    • Operate as part of a supply chain
    • Sell products online
    • Outsource to dropshippers or fulfillment affiliates

    2. Assess Your Risk

    Much like businesses, auditors have quotas and look for patterns of non-compliance. The more you know about how to calculate, collect and remit sales tax, the more likely you are to catch any mistakes or oversights and correct them prior to an audit. Review your compliance practices to make sure you:

    • Understand your filing requirements
    • Made accurate tax rate calculations
    • Can justify product taxability or exempt sales
    • Kept detailed sales records and can easily access them

    3. Be Proactive

    Being prepared involves directing your plans toward the future rather than scrambling to respond after the fact. Despite the complexities of the nexus system, there are steps you can take to decrease the chance you will be audited or at least reduce the likelihood that you’ll face uncollected tax fees or penalties. To avoid an unwelcome surprise:

    • Conduct a nexus study
    • Stay up-to-date with rate, rule and boundary changes
    • Report consumer’s use tax
    • Replace manual process with automation

    There’s no way to predict whether or not the state will come calling. But, with a little advance planning, you can minimize the impact of a sales tax audit on your business.

    Better yet, automate your sales tax. Then you won’t need this checklist — or a deadbolt lock.

    This article was syndicated from Business 2 Community: Tax Audit Checklist: Don’t Let the Next Audit Take You by Surprise

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