Putting documentation together for an audit is the biggest P in the H I’ve been through in a long time – even as Realtors who each go through a tree a week in contracts and disclosures – this beats it. So to save you from some of the hair pulling and headaches, I’ve come up with my Top 10 Lessons I Learned from an IRS Audit:
10. Track your miles. Every time my CPA said, “You really should be tracking your miles,” I did one of those “cha” noises. Not anymore. The hours I’ve spent reconstructing a year of head-banging frustration in previewing and showing property and not selling it is a bitter reminder.
9. Determine the clients’ motivation – buyers and sellers – before I start the car or warm up the computer See number 10.
8. Get a buyer-broker agreement – every time. No exceptions. See number 10.
7. If you don’t have money-management software, yesterday was a good day to start using it. Then learn how to use it. And use it all year – not just when it’s audit time and you have to spend four hours figuring out what you bought at Home Depot in February.
6. Unball those receipts you’ve been carrying around and file them in a file in a drawer.
5. Back up your computer. Do we have to discuss this one again?
4. Use a CPA. Cheaper is not better. You know what you tell sellers all the time: You wouldn’t do your own surgery, right? Why would sell your own house? Don’t do your own taxes.
3. Know and understand how your CPA is categorizing your expenses. If you mail postcards, does it go under promotions, advertising, printing?
2. Keep your personal and business expenses separate. Separate checking accounts and credit/debit cards used solely for one or the other.
And the number one lesson I learned from an IRS audit…drum roll…please….
1. It’s not if, it’s when. So be prepared. It’s going to happen. And when it does, put on your fuzzy slippers, get a cup of hot chocolate, play Chrismas music and solicit lots of sympathy on Twitter – oh wait. That’s what I’ve been doing. Anyway, make the best of it. And don’t say I didn’t warn you.
December 23, 2008 at 3:24 pm
Most of us can become too relaxed with financial organization but if we get audited, it can become a nightmare. And these are great tips to prevent an even bigger headache. Thanks for the reminders!
December 24, 2008 at 5:45 am
I can only imagine the headahes and hope I never personally have to know what you are going through.
One can never be too prepared for either an IRS audit or simply knowing their expenses.
December 24, 2008 at 3:07 pm
My records used to be perfect but now they are a mess. If I get audited . . . 🙂
December 29, 2008 at 5:50 pm
..my CPA told me, if you get audited I will go, you stay home. Tee hee. I have no understanding of that corporate document.
December 29, 2008 at 5:55 pm
Missy – My CPA told me the same thing. He was so funny. He said, “You can go, we can go together or I can go for you. I suggest I go for you. I don’t think it’s a good idea for the client to go. They always talk too much.” I thought YES. I can understand that. You go!
Oh Teresa & Paula – It’s awful.
Andrew – I hope it helps. Seems that we’re the target for the IRS this year.