As the year comes to an end, that also signifies that tax season is fast approaching. Hence, business owners must also buckle down on their accounting and bookkeeping. This will prevent any potential BIR tax audits after filing. These tax audits are done to ensure that you are paying the right amount of taxes and presenting all your receipts and invoices accurately.
Most taxpayers and companies do their very best to close or end the tax audit in its initial stages, which include receiving the Notice of Discrepancy or Preliminary Assessment Notice from the BIR. The reason for this is discrepancies are easier to resolve in these stages, as the closure of investigation usually involves dealing with the findings or computations of tax deficiencies.
Dragging the process out until you get a Final Assessment Notice or until the BIR elevates your case to the Court of Tax Appeals spells bad news as it costs a hefty sum to resolve as lawyers would have to be involved. The reduction or cancellation of the assessment in these late stages is also not guaranteed. Thus, it is better to resolve everything with the help of your trusted CPA and pay for whatever penalties right from the start.
What are the usual findings in these tax assessments? Read more below as we have listed everything for you.
Discrepancies in amounts per book vs. per tax return
BIR audit procedures include the cross-referencing and analysis of all the amounts in books of accounts and the tax returns. Since all listed amounts on the tax returns are supposedly taken from the books of account, any discrepancy that is identified must be reconciled, adjusted, and explained to the RDO representative conducting the audit.
Any failure to correct these discrepancies may result in fines and penalties. It is very important to pay the correct taxes. If you are not sure what to do, have a professional accountant look at your books.
Substantiation requirements that are missing from returns
The BIR may request documents to corroborate claims to tax breaks exemptions, deductibles, and tax credits. This is done to ensure the fairness of all claims. If you are requested to substantiate your claims, you will need to present supporting documents like receipts, invoices, and certificates of incentives and credits; otherwise, you will be fined by the BIR, and an imposition of deficiency taxes will be filed against you.
Noteworthy, all receipts and documents that are non-compliant with VAT invoicing requirements will call for prohibition of VAT input by the BIR, and a computation for VAT deficiency will be made. Penalties will then be enforced accordingly. Thus, it is best to have all your paperwork and books in order. Taking the time to do proper accounting and bookkeeping throughout the year will help.
Verifying reconciliation with the third party information
The BIR is fitted with its own information database that can locate transactions of the taxpayers with their suppliers, customers, etc. The BIR uses information and proof of purchases, sales, etc., from these suppliers and customers and cross-checks it with the taxpayer’s transaction to check for any variances in the amounts. Any findings of discrepancies will require explanations and will result in tax deficiency findings.
If your business gets called in for this, do not fret, as often, these discrepancies arise from the difference in timing by which the seller reports income compared to when the buyer records the purchase. Your CPA can help you settle any issues and help deal with the BIR.
Tax filing is stressful in itself but getting an audit from the BIR can be just as, if not even more difficult and stressful. If you find yourself getting an audit request, do not hesitate to seek help from a professional certified public accountant. Moreover, remember that the best way to ensure the filing of non-erroneous tax returns is to be on top of your finances from the get-go.
You must have seamless bookkeeping and accounting systems in place so your business operations can run smoothly. If this proves to be arduous, you may always hire in-house professionals; our outsource financial services. Should you need assistance, call our team at UNA for advice. We proffer a free 30-minute consultation to help you get started on the right track.