Video: What Can I Do to Make Sure That My Startup is Well Prepared for an IRS Audit?
What can I do to make sure that I am prepared for an IRS audit? Ultimately, how can I make sure that I don’t get it to an IRS audit situation?
The answer is there’re three main things that you really want to keep in mind.
The first of which is to make sure that you save all of your receipts for anything over $75. Also, make sure that you keep all of those business expenses reasonable. Things like purchases from Office Depot, that is plain and simple, pretty clearly a business expense but something from Lululemon, that does not sound like a business expense whatsoever. Just make sure that you do keep it in the realm of business and in your specific business line.
The second thing to keep in mind is whether or not you’re profitable. One of the first things that the IRS is going to look for when selecting who to audit is whether or not you’re a profitable company and whether or not it’s going to be worth their time to go in, send an agent, and really poke through all of your files. If you’re a pre-revenue startup or if your operating at a loss chances are you’re not going to be flagged for an IRS audit but that is not a hard fast.
The last thing that you’re going to want to keep in mind is payments to the executive team. IRS auditors care about this a lot. They do want to make sure that if you have had money going out to the executive team that it’s either gone through payroll or it’s for legitimate business expense reimbursements. This is where using Expensify really comes into play. You absolutely want to make that if you are reimbursing any employee in your company or contractor for that matter, that you’re using Expensify largely because it provides a rock-solid audit trail should those auditors come up and ask about certain transactions.
Again, in order to make sure that you are ready for an IRS audit and you stay out of trouble, save your receipts over $75, consider whether or not you’re at risk for an audit if you’re a profitable company, and last but not least, make sure you have rock-solid documentation on payments to the executive team.