Keeping GREAT records is the key to not only a successful business but for a successful audit. Maintaining great records helps develop a solid background and history of your business activities and responsibilities. Due to the complexity of the music industry, auditors will pay very close attention to what the taxpayer actually did to receive each item of compensation and if the expenses are justifiable.
Generally for tax purposes, businesses should retain all documentation for at least 3 years. 6 years if they under reported gross income by more than 25%. See below for a list of items to keep.
In regards to physical property, the business should keep records until the period of limitations expires for the year in which the property is disposed of. These records will be used to figure any depreciation, amortization, or depletion deduction in addition to the gain or loss when the property is sold or disposed.
In the case of an audit always have these documents easily accessible:
Because the burden of proof is on the taxpayer to back up every item on the tax return, the best approach for successfully clearing an audit is to have kept as many records as possible. When in doubt, keep it.
*Record expenses and identify sources of income as they occur to save hours of back tracking later.*
By reconciling the accounts on a daily, if not weekly basis, the taxpayer avoids having items slip through the cracks. Most importantly, it prevents spending countless hours trying to remember past details. With the use of technology, most documentation is now paperless. Save space and give yourself peace of mind by storing everything electronically (always make backups.)
To read about how the auditors will use these documents to allow or disallow your claims, stay tuned for the next article “How The Auditor Reviews Your Paperwork During an Examination Process”
If you are currently being audited or suffering from back taxes and penalties, book an online consultation here or call now at 404-449-1528! At Credence Tax Services LLC, we use strategic approaches to maximize any/all opportunities to save our client’s money!