| The most overlooked management tool in the | | | | The first step is to use a reputable bookkeeping |
| average small business is the bookkeeping - until | | | | system. This may be a bookkeeping journal, or a |
| the Income Tax service calls for an audit. Then | | | | software program. The computer programs are |
| the small business owner is left scrambling to | | | | the easiest for new companies to use. They |
| gather up their records and try and organize | | | | generate reports automatically. |
| them in a professional manner. This is often 'too | | | | Keeping records of income and expenses is only |
| little too late' for most business owners. | | | | half the task. A small business owner also needs |
| The most important thing to remember is that | | | | to keep a record of the time spent with the |
| you are a business. It doesn't matter if you are | | | | business. Many business owners use day planners, |
| investing $100 a month, or making candles to sell | | | | or even a blank notebook to keep a daily record |
| at a local flea market. A person who provides | | | | of their activities. This is one of the best tools to |
| day-care for children, or the elderly, in their home | | | | prove that you've been engaged in a full time |
| is as legitimate as a corporate lawyer's office in | | | | business, and deserve to claim all tax benefits, |
| the downtown core. A person who writes web | | | | especially if the company has not started |
| articles, or has a drop-ship ecommerce website, | | | | generating revenue at the moment. |
| or a forum poster must all keep tax records for | | | | The third tool needed is a business account. All |
| their business. | | | | income should be deposited in this account, and all |
| The Income Tax Auditors are not dissuaded by | | | | money should be paid in the form of a check that |
| comments such as: | | | | can be tracked. |
| It is just a hobby | | | | Organize Paperwork |
| It is not full time | | | | One of the worst things you can do is drop a |
| I work for a company in another country. | | | | shoe box of receipts on the auditor's table and |
| I do this for fun | | | | hand them some hand written balance sheets. It |
| I am just helping my in-laws | | | | is better to have an accordion file, divided by |
| I don't make enough to register as a real business | | | | month, or weeks, even if there is only one |
| If you are engaged in a task that produces | | | | receipt in each section. |
| revenue, then you are in business, and all the tax | | | | Each receipt should have the 'journal number' |
| laws apply to you, regardless of how little you | | | | printed on it, and each journal entry should have a |
| make, or how occasionally you work. | | | | receipt number in the description box. This will |
| Why Are You Being Audited | | | | make it easy for the auditor to find what they |
| The first step is to understand that a 'letter of | | | | are looking for. |
| audit' does not mean the Revenue agency found | | | | This is most important for questionable receipts. |
| something wrong. Sometimes the government | | | | An expense $1000 for cleaning may look suspect, |
| picks businesses within a certain industry at | | | | but if the receipt is filed with a note explaining |
| random for an audit. They do this to build a | | | | that your refreshment table spilled soiling 2 |
| statistical base, and economic information needed | | | | people's suits and the rug at an office complex, |
| to measure the Gross National Product. | | | | complete with contact names, the auditor will |
| Even if there is a problem, it rarely means that | | | | quickly overlook the expense. |
| you are in legal danger. Sometimes the paperwork | | | | Paper Trail |
| did not add up. The Revenue agency may just | | | | The paper trail is the life saver. Always have a |
| want to make sure that your mistake is not | | | | paper trail. Cross reference things. If you are |
| intentional, or far greater than they first | | | | using a tool such as Microsoft's Business manager, |
| expected. | | | | you can assign tasks a number, use this number |
| How To Prepare for an Audit | | | | on receipts, keep a journal of time spent, cross |
| Preparation for an audit starts years before a | | | | this with people's names, and then use the |
| letter lands on your desk. The first step is to | | | | numbers in the bookkeeping journals. |
| register the business and find out whether retail | | | | A paper trail is just that, a method of tracking a |
| tax applies to the services and products offered. | | | | project, purchase, or sale. The better the paper |
| This is especially important if the income is | | | | trail, the quicker an auditor will dismiss your case |
| generated in another country. | | | | and let you go home. |