Businesses have an obligation and responsibility to keep accurate tax documentation in order to avoid major issues that can occur after being audited by the U.S. government. Not much is worse than stalling the productivity and growth of your small business because you are forced to backtrack through all of your tax documents to prove a more accurate financial picture of your business to the government.
So what exactly happens if you don’t keep accurate records? A number of frustrating consequences can occur:
Pay more taxes: if you keep poor records or lose the needed receipts to claim your deductions, you won’t be able to document these items on your tax return. The lack of this documentation ultimately causes you to pay more than what you truly should owe.
Face major penalties: the IRS may charge you a penalty because you were unable to provide the proper proof of expenses.
Experience audit failure: if an organization fails an internal or external audit, the penalty may be a large fine or in some more severe instances, the forced closure of the business altogether.
Additionally, tax documentation records serve a powerful purpose beyond just filing taxes; they also help to identify many key elements of the financial picture of the organization. Without proper tax documentation, you may also be missing important aspects of how your business is performing.
So how do you ensure you have proper tax documentation? Here are a few suggestions:
Fulfill payroll responsibilities: payroll is a large expense for most businesses, so the IRS is very concerned about the ability of a company to comply with their requirements. Keep annual reports with summaries of payments and provide employees with their w-2 forms according to the IRS deadlines.
Get accounting software: there are countless accounting systems available for purchase today that are designed to help businesses of all sizes keep accurate documentation records. These systems can serve many purposes as well, being used for both tax documentation, as well as monitoring financial management for the business.
Work with professionals: it’s okay to know when to ask for help. most small businesses today simply can’t afford to make a tax documentation mistake that results in paying extra fees to the IRS thankfully, there are experienced professionals like those at Acena Consulting who can help businesses navigate tax documentation questions or concerns.
We understand it isn’t enjoyable to read about all the unfortunate consequences of improper tax documentation. However, understanding the risks of improper documentation can serve as a powerful motivator to ensure your organization is taking the right steps to protect the future of the business.