Are You Vulnerable to a Tax Audit?

About Me
How an Accountant Helped Me

Some small business owners view accountants as an unnecessary expense. I know this because I used to be one of those small business owners. However, all of that changed when I realised that my business account didn't balance. I realised that I did not have the skills to do the numbers anymore so I called in an accountant and asked him to go over the books. He was a real pro and I decided that I needed him on my team. Since hiring the accountant, I have learnt just how important the work they do can be to a small business.


Are You Vulnerable to a Tax Audit?

6 November 2018
 Categories: , Blog

Does your heart skip a beat whenever you see an official letter in your mailbox? If it is obviously from the ATO, then this may make your mouth dry as well, as you wonder why they are writing to you at this time. More often than not the answer is quite mundane, but sometimes this form of communication may be the trigger for a full audit. How can you be prepared for this eventuality and, more importantly, make sure that don't worry yourself to death in the meantime?

It's All About Teamwork

Certainly, an ATO audit is not a walk in the park, but the more organised you may be and the more help you have, the better you can be prepared. If you do get an audit, you should bring in a qualified accountant to help you step by step, but you should always have a good bookkeeper on call anyway.

Why Audits Arise

Contrary to popular thinking, the ATO does not have a team of individuals who are going through each return with a fine-tooth comb. Instead, they rely on completed algorithms that compare your return to industry standards and may raise a digital red flag if something untoward or unusual appears. If your returns show figures that are unusual, then the paperwork will fall in front of an inspector, who will look into the matter more deeply.

Backing Up Your Claims

It's not unusual for a business to be different to others in a similar industry and for this type of red flag to appear on a regular basis. This is fine so long as the figures can be justified, and it's always a good idea to keep records as up to date and accurate as possible in anticipation of any questions. As a small business owner, you should never delay any bookkeeping activities until the last moment, as you may have difficulty recalling individual details or may mislay important papers.

Are You Sure?

When you get a good bookkeeper on your side, they can also confirm whether you are entitled to deductions or credits against your liability, and this is another area where you should never guess.

Five Long Years

Remember, you can receive a notification of audit for five years after a particular return has been submitted, so you will need to ensure that your records are maintained for at least that long. If you're not good at this type of work, it's another reason to get a bookkeeper to help you.