Author: Amanda Roth, CPA
What does this image make you think of? It makes me think of all the recent sales tax audits I have been involved in. The most dreaded letter to get in the mail is the one that reads “We’ve scheduled an audit of your New York State sales and use tax records”. Even if all your records are in order and all your sales tax has been paid, the process can be overwhelming and you may not know what to expect. If you feel anxious, terrified, or even a little nauseous at the prospect of an audit, you are not alone, many feel as you do. It can be a daunting task to get organized for an audit. But don’t panic, these tips may help your audit go more smoothly.
Surviving a Sales Tax Audit
- Locate all your records – Make sure you can find all the records the auditor is asking for, if not try to obtain them from other sources (tax returns from your CPA, bank statements from online or from your local branch, etc.)
- Get Organized – Organize all your records according to the request list and present them in an organized manner (i.e.: by year or alphabetically). As a CPA I recommend setting up a binder, printing the request list and setting up tabs that correspond to each item requested. Some items, such as invoices, are too large to put in the binder. For these types of documents, a box will suffice, and then reference their location in the binder. Purchase invoices should be grouped together per vendor and listed in date order. This is usually done to make it easier to pull out the applicable invoices if a test period is chosen, or to search a particular vendor file quickly if the auditor wants to view certain expenses.
- Be prepared - Always make sure you have what the auditor has requested before scheduling an appointment. No one likes wasting time and it will make the audit move along more quickly.
- Put your best foot forward – Always look at everything you provide an auditor and ensure all work papers tie out to reports and/or returns provided. Present and retain records as organized as possible and ensure the records you print agree to reports or returns. Sometimes if you rush and just gather the information, errors can occur.
- Make sure you have your “A Team” - Decide if you will be representing yourself or if you will be getting your CPA involved to help in the process. Most businesses feel they can handle an audit on their own to save on costs. However, there are times where having a representative saves money in the long run. A representative allows your employees to focus their time on what they are best at (usually the operations of the company). Some considerations in deciding whether to go it alone or get your CPA involved are as follows: cost, resources, capacity, technical knowledge, business needs, condition of record or lack thereof, and knowledge of audit procedures.
These five basic tips will help make any audit go more smoothly. I always recommend getting your CPA firm involved; they are accustomed to the many obstacles of audits and might be able to help clear a path to a smoother audit; alleviating that anxious and overwhelming feeling that many get.
Contact Our Sales Tax Professionals
If you are not sure what steps to take next, contact Freed Maxick. We can help you navigate through a sales tax audit, and help get you organized. Please contact us for more information.