Going through an audit is a major headache because you need to dig up records to prove you are not deliberately evading taxes or under-declaring your figures. Follow these tips to ensure that you can stay under the BIR’s radar. And if you do get an audit “love letter,” here’s what you can do to make it less stressful!
How to Avoid Getting Audited?
When it comes to your taxes, the key to success is compliance. Make sure your taxes are completed, filed, and paid for before the set deadlines. You must be prudent in computing your tax dues and payables to avoid mistakes that can lead to a tax deficiency audit. Follow these suggestions to ensure your tax returns, statements, and other declarations are accurate:
1) Always Report Your Full Income
When you tabulate your total income earned for a year, you must include every single thing. This includes your side hustles, rentals, and other earnings that you received. If you don’t make a full report just to save a few thousand pesos, it can cost you more later on. An audit will stress you out, and an erroneous report means you must pay hefty penalties and surcharges.
2) Avoid Any Computation Mistakes
When you calculate and report all your sales and deductibles, you must be vigilant in tabulating. Accuracy is a top priority unless you want an audit. When your numbers don’t tally, you are setting yourself up for a disaster. Double or even triple check your returns before filing.
3) Make Correct Reports of Expenses and Deductibles
When it comes to your business expenses and deductions, don’t over claim. This area is a major red flag for the BIR because too many entrepreneurs lower their dues by padding this segment. Erroneous data entry is a common sore spot for auditors. Ironically, it is also the most preventable if you stay truthful about all your financial paperwork.
4) Submit Sufficient Evidence with Returns
Always make it a habit to submit sufficient evidence with your tax returns. An auditor is skilled in finding out discrepancies, whether accidental or intentional. When you submit the receipts and documents to back up all your claims, there is no reason for an audit.
5) Work with a Professional
The best thing you can do is tax plan with a certified public accountant. Working with a professional ensures your tax returns are accurate and truthful. Your CPA will also review your books and financial statements to ensure you remain free from tax deficiencies.
What to Do If You Face an Audit?
If you are an honest businessman, an audit should not faze you. Getting a BIR audit letter doesn’t automatically mean you are a crook. Yes, the process is stressful because you need to show your records to prove you are not delinquent. To help minimize the negative effect on your operations and ensure the audit process goes smoothly, you can do the following steps:
1) Read the Letter of Authority with your accountant
Carefully read the letter so you can determine what the BIR needs from you. Go through the notice with your accountant so you can pinpoint what issues they flagged. Ignoring the letter and delaying action will only make you look suspicious. Besides, the longer you delay, the more penalties you accrue.
2) Organize Accounting Records and Other Statements
Before the Revenue Officer comes to take a peek at the records, make sure all your paperwork is organized. Now is the time to take a look at the past few years, so you are ready in case they ask for it. If you are diligent with your bookkeeping and documentation, then you will have copies of receipts, invoices, bank statements, ledgers, leases, and the like.
3) Answer Honestly
Honesty is always the best policy. If the Revenue Officer meets with you or your representative, they will be asking a lot of questions. As such, be prepared to give a truthful answer. Don’t manufacture excuses and fabricate details. There is also no need to volunteer any additional information. Just stick to the issue by providing the requested information, and you’ll be done fast.
4) Avoid Antagonizing the Revenue Officer
If you need to discuss details in person, avoid antagonizing your Revenue Officer. As an honest businessman, you don’t need to feel defensive or evasive. Be confident when you face the BIR with your CPA because you know you’ve done nothing intentionally wrong.
5) Comply With Demands
As a taxpayer, you have no choice but to comply with demands. If you cannot provide sufficient proof, you have to pay the calculated deficiencies, penalties, and surcharges.
Final Wrap Up
If you want to protect your business from BIR tax scrutiny, then you need to maintain good records. You must also file your taxes on time and meet with your CPA regularly. When you do these things, you can rest assured that your taxes and financial records are in the best shape. And in case you do get audited, you have nothing to worry about because you have an organized file of accurate records to ensure you remain in good standing with the BIR.