Documents and Organization – How to Survive an Audit

As subjects go this one ranks right up there with watching grass grow or paint dry.  I get it.  This is not a sexy or exciting topic.  That’s all true, at least until the CRA auditor shows up at your door.  At this point it gets very sexy as you slowly feel as if you are being bent over … (chick – ah – bow –wah, chick – ah-bow –wah) .   Ok enough visualization.  I am sure you all know where this goes.  The reason I am writing this is not because I aspire to write a screen play for a porn flick.  (Although I am sure it would sell out with the right title.)  How about  “The Auditors Briefs” , “Auditors Gone Wild”, or “Debbie does Audits”.  Ok enough of this.

If you don’t want to costar in a movie with a title like this then keep reading and I will tell you how to keep your nether regions intact, at least from the CRA.

Firstly, you MUST record your expenses in an accounting program, or at least on a spreadsheet.  If you have a listing of all your expenses you will always be able to remember how you or your accountant got a certain number onto the tax return.  If you have this information you will also be able to explain what you did to someone else.  Further, the auditor will have to start with your numbers instead of making up their own, which is what happens when you can’t come up with a documented basis for the numbers you claimed on the tax return.

Second, organize your receipts in the same manner as they are claimed.  They should be in order by date and separated into categories, (ie. Gas, food, travel, home office, office, advertising), the same categories you are claiming them under on the return.  The better organized you are the easier it will be for the auditor.  The easier it is for the auditor the shorter the period they will spend looking at your records.

Oh I know this all takes time to do and is B-O-R-I-N-G !!!!!!  Choice is yours.  Boring now or painful proctology based audit appointment later.  Most people will agree that audits are a pain in the@$$, but by organizing your documents and keeping good records we can keep this sentiment in the figurative world instead of the literal. 

Failing to plan is the same as planning to fail.  If you don’t want to do the work, hire someone to do it for you.  The financial cost to you and your business of ignoring the paper work is far too great.  A few hundred dollars a year for a book keeper will save you tens of thousands in potential taxes.