Countdown to tax time: Avoid an audit

For a lot of business owners out there, the word “audit” coming from their accountant is enough to induce heart palpitations.

Even if you know you are thorough with your record-keeping, there’s always a tendency to second guess yourself.

Having an audit doesn’t necessarily mean you have done something wrong; sometimes it’s just the luck of the draw.

To reduce the risk of raising a red flag, here are some tips that you should be aware of to help to avoid that dreaded phone call.

1. Personal transactions

I always recommend to my clients that they keep all personal transactions completely separate from their business transactions.

Even if you are a sole trader, have a separate bank account for personal use and keep your business bank accounts strictly for business. Online accounting software like MYOB Essentials includes time-saving features to help take care of the day-to-day bookwork.

2. Know the benchmarking standards for your industry

Benchmarking is how the ATO keeps tabs on businesses.

Most industries have a set of benchmarks that the ATO matches to businesses. For example, if you are in the restaurant industry, the ATO will know what your Cost of Goods for food or beverage should be sitting at.

It’s all about margins, so if you are in business, it’s a really good idea to have a chat to your accountant and find out what the benchmarking standards are for your industry to make sure you’re in line with what would be expected.

Not only does this help avoid an audit, but it makes good business sense to know these things.

3. Report your income and expenses accurately

Report all income!

If you have a lot of cash transactions make sure that you have tight systems in place to ensure cash is reconciled daily.

Don’t be tempted to exclude cash from your reporting. For my clients who have cash businesses, I ask them to bank every cent. It makes it much easier to reconcile in your accounts.

You should also only claim legitimate business expenses. If you are unsure if a purchase is tax deductable, ask your accountant.

A few areas that are closely looked at are Travel, Entertainment and personal use of Motor Vehicles.

If you do a lot of travel for business it’s a good idea to keep a travel diary, make sure you are across what can and cannot be claimed for entertainment and don’t forget to keep your log book in order for your motor vehicle usage.

READ: What the ATO is looking at this year

4. Include everything

The ATO data matches with other agencies. If you have excluded things like interest, shares, dividends and capital gains, this could be picked up triggering an audit.

5. Lodge on time

Being a regular late lodger can definitely put you on the ATO’s radar. Staying on top of your bookkeeping on a regular basis makes it easy to lodge your BAS, IAS and tax returns on time.

Make sure that when you do lodge, you are lodging with the correct data to avoid having to make revisions down the track.

In the event that you are to receive an audit, the best thing that you can do is to be organised.

When the audit takes place, apart from having accurately reported transactions, the Auditor will want see that you have good record-keeping systems in place, you have been able to provide all the required information and are co-operative with their requests.

Want to stay on top of record-keeping? Try MYOB Essentials free for 30 days.

Source: MYOB

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