Being audited? You need help! The most important help I can give you is to adjust your mental state.
Then maybe, just maybe, you can listen to some good advice about not just surviving, but enjoying and possibly flourishing in a tax audit.
That's right, enjoy it as it should be a learning process to help your business with better controls.
Better controls means more money for you! Panic? Throw up? Run for the hills? These are typical responses to a letter from the tax man.
A letter from the tax man is not your typical letter, but it is definitely memorable to read the words "Tax Audit" followed by a date you have to prepare your books and records for review.
Yikes! Rest your mind and don't panic, you too can more than survive a tax audit.
People do every day.
The secret to "flourishing in your tax audit" is to not believe the misconceptions out there.
The list below is the most popular misconceptions I have heard from clients.
Misconception #1: The tax man is out to get me! It is the CRA or IRS's job to randomly audit businesses on a yearly basis.
They choose businesses with a lottery type system and you could be one of the chosen ones.
At the end of the day, tax authorities collect information, check for accuracy, makes necessary adjustments and they keep & update statistics.
It is not personal and they are not out to get you.
You never know, you could get some money back! Misconception #2: I received another letter from the tax man.
It must be really bad now.
If you receive additional mail from the CRA or IRS, please don't automatically assume that there is anything wrong.
Just pretend you received mail from any other company and check their accuracy.
The people at the CRA or IRS are human just like anyone else and they too can make errors...
Misconception #3: The tax man will garnish my account or worse, they will take all my money.
All they are interested in is getting paid just like any other creditor.
Of course, they have more power than your average creditor, but they will work with you as long as you WORK WITH THEM.
Not working with them can cost you additional interest and penalties.
Eventually, you may be garnished for not cooperating.
Misconception #4: I will end up paying more money just by talking to them.
The only way that you could end up paying more tax dollars is if you actually do owe them.
It is not the task of the CRA or IRS to automatically assume you owe them more.
They have to have a basis for every dollar they say you owe.
If you keep neat and tidy records, have back up for your deductions and file on a timely basis, chances are that you do not owe anything in addition to what you have already paid.
If you don't keep good records, you may need to get some help and make your life easier.
Misconception #5: The tax man will not help me.
The fact is, you can call them for free on many of their TOLL FREE numbers.
Now why would they make it easy for you to call if they didn't want to help you? Afraid of phoning, don't be.
You can also just go to their website and search out your question.
Just Google CRA or IRS and they are usually right at the top, no competitors to knock them off the top.
Their websites are amazing and very helpful.
Misconception #6: I have already paid my taxes and now they say I owe more.
Will this ever end? If you paid your outstanding amount by the due date, the tax man has most likely made a mistake.
Yes, they do make mistakes.
The CRA or IRS employees are people, just like you and me.
In order to clear things up, you will need to contact them.
The people at the CRA and IRS are quite friendly and helpful.
Just explain your situation and they will correct any error(s) they have made.
This also includes anything that has accumulated additional interest and penalties that you should not be paying.
Just be clear and relaxed when you speak.
Remember to breathe...
What to do when you call the CRA or the IRS.
Recommendation #1: Be proactive and be first to make contact with the tax man.
I am amazed at how often people sweep things under the carpet.
I have been guilty of this in the past and have found that things go more in my favour when I take the initiative and call the CRA or IRS.
If you wait too long, your time for negotiating with them is shortened and they won't give you a lot of additional time.
Recommendation #2: When making contact with the tax man, ask the PERSON on the other end for their name and remember to thank them when they help you.
The sweetest sound to any person is their name and being appreciated.
You will be in a better position if you treat any collector like the human being that they are.
Just remember, it is a job that they are doing.
There is no need to make it harder for you or and for them...
Recommendation #3: Make sure you have all the facts from CRA/IRS regarding your situation.
It is very important that you have the same information as they have in order for you to understand where they are coming from.
Without it, you will eventually loose, as they will have the Income Tax Act or the IRS code on their side.
Your chance for negotiating and correcting things can happen when you have the same information.
This will help both you and them so that you can both agree at the same time.
Ask for your information.
You have a right to it and it will make you feel so good...
Recommendation #4: Things went bad with my call to the tax auditor.
CALL AGAIN! Things can go wrong for a number of reasons.
Who knows who your contact person spoke to before you called.
Maybe they weren't as nice as you.
Please make sure you are relaxed before calling back.
Wait at least 24 hours from your previous bad call.
Start your next call off by letting him or her know that your intent is to work with them.
Apologizing for the previous situation is extremely helpful to you, even though you may be the one who deserves the apology.
Remember, you want them on your side.
If these 4 recommendations are not helping you or the audit is too complex, you need some professional help.
Time to talk to your accountant.
But and that's a big "but!" Be sure you have the right accountant to work with.
The wrong one can cost you in some many ways! Are you the right accountant for me? Question #1: Do you specialize in representing your clients with tax authorities? Just because someone is an accountant or an accounting firm doesn't mean that they want to work or have worked with the CRA/IRS.
This is no different than with a doctor.
There are doctors who are generalists and there are doctors who are specialists.
Make sure you use the one you need for your situation.
Just ask them if they want to work with the CRA/IRS.
Their response to this question should tell you everything you need to know.
If in answering they hesitate, FIND SOMEONE ELSE! Question #2: Can I contact your clients who have worked with the CRA/IRS and have worked with you on an audit? If someone has worked with clients on CRA/IRS issues, they will have a track record.
The best way for you to know is to contact prior client(s).
The accountant will most likely have to get the permission of the prior client(s) before you can speak to them.
Question #3: What kind of track record do you have with tax audits? Before you hand over your life to anyone, I would highly recommend that you check "the fruit on the tree".
It isn't enough for you to just assume any accountant or accounting firm can deal with your situation with the CRA orIRS.
Be prepared to interview at least three (3) candidates.
Treat the interview process similar if you were going to hire someone.
Come prepared with questions.
Do your research beforehand.
Question #4: My business has not been very good at record keeping.
Can you help me before I meet with the auditor? You would think that accountants would take on a client in need of straightening out.
Many don't and the reason is directly related to how long it will take and how much time they have.
Alternatively, the CRA/IRS will create your books for you.
You will still need a qualified, experienced, person to make sure that the result is not one sided, in their favor.
The benefit of this approach is that the CRA/IRS will not charge you for organizing your books.
You will only have to pay for the additional independent accountant's time.
This may sound like a strange approach but it will save you money.
Just make sure you choose the right accountant to supervise the tax man.
Question #5: Can you explain these tax issues to me in layman's terms? This is a great question to ask to see if the accountant you are considering is someone you can work with.
If all you get is a bunch of sections and subsections of the Income Tax Act or IRS Code, BEWARE! Knowledge of the Act or Code is helpful.
Applying, researching information and explaining it to the client in an understandable way is more important.
If your candidate can't do this with you the client, how do you expect anyone at the CRA or IRS to understand them? Simplicity here is by far the best approach.
No one likes to get audited, but this experience can help you to learn new things about your business.
It can help you to develop a better relationship with your accountant and it can make you more confident when dealing with tax authorities.
Do your best to find the positive in this tough situation.
You will be rewarded with a strong business and greater control of your success.
Sincerely,