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.