How can you prepare for a tax audit?

How can you prepare for a tax audit?

Regardless of the trust placed in your accountant or bookkeeping service as the most important business partner in charge of your financial operations, once a tax audit is announced, the experience is seldom pleasant. The tax regulatory framework is subject to constant change and the practice often varies from one Tax Administration to the other, or even from one tax auditor to the other. Excessive fines may seriously endanger the very existence of small-sized enterprises, thereby increasing the fear and discomfort. Regardless of the effort put into doing everything by the book, to err is human and errors are always made. There is also the possibility of not using the available tax-deductible expenses if we were not informed on them in time for some reason.

We’ll therefore tell you why it’s important to hire a tax advisor, as well as present some models of hiring one.

1.Pre-emptive tax control and advisory – From the moment your business starts, you should count on the possible arrival of the tax auditors and the tax supervision being initiated at any given moment, including the very start of your business. Therefore, it would be best to prevent it. The best way to accomplish this is by hiring a tax advisor as a part of your accounting and bookkeeping service – we wrote about this in an earlier blogu. The person in question must be well versed in audits, with knowledge of latest laws and regulations concerning the tax policy, as well as, and this is the most important part, be well versed in the tax practice of your Tax Administration. With the aid of such knowledge and experience, and by following your financial operations while actively influencing and shaping them with the help of advice and control, it is possible to prevent the making of possible errors and tax offences during the development of a business event. A tax advisor will take the broad view and utilize multiple perspectives: this approach allows him to notice potential unintentional irregularities occurring easily in everyday business practice and correcting them in time.

2. Periodical tax controls – If you’ve been using the same accounting and bookkeeping team over many years and you do not wish to change it, a tax advisor could be hired periodically, once or twice over the course of a year. The goal of such controls is to notice and correct possible errors and irregularities in good time, and not when it’s too late to do anything about them, after they are discovered by the tax audit. The tax advisor can also point out which tax-deductible expenses are yet to be fully used or point out a lawful way of sorting out an issue troubling you, thereby preventing enormous fines.

3. Audit exercised at the very last moment (“two minutes to midnight” audit) – This is the most urgent and least desirable situation to be in, namely that brief period of time starting with your mailbox receiving the Notice of Audit scheduled in a few days’ time from your Tax Administration, requiring documents for the tax period specified to be prepared for inspection. What usually follows is a frantic search for someone who needs to review the requested, usually extensive, documentation, and who will also note the possible errors and correct them in good time – before the tax auditors inspect the documents. The described scenario is rather stressful even to read, you’ll agree. Everything about this option makes it highly undesirable and it should, consequently, be avoided as often as possible by making responsible business decisions.

In conclusion, a year-round screeening or tracking of business events being and their evaluation by a tax advisor, offers you the greatest degree of security; periodic controls offer you partial security; whereas control exercised at the very last moment, intended to make preparations for the tax audit already announced, ensures a great amount of stress and represents the least desirable alternative.

Whichever model you choose, feel free to trust our knowledge and experience – get in touch with us and request.