It's Tax Time....Are You Ready?

As mentioned in one of my earlier posts, we had the wonderful opportunity of being audited by the state of Wisconsin two years ago. Last year, a good friend of our had also received a notice of an audit. Since we are now technically into the "tax time" of year, I thought today would be a good day to start reviewing what types of documentation that our state, at least, required for our audit. Especially so that you can set up your files (or binders) now, rather then at the end of the year. Now, we do own our own business, so some of the documents listed obviously pertain to being a small business owner. My friend, on the other hand, does not own a small business, and so her required documentation was not quite as extensive. When you review this list and compare it to the documentation that you keep, some things may not necessarily be applicable to your particular circumstances. In other words, if you don't have a particular document, have never needed or seen a particular document, then, even though it is included in my list, it may not be relevant to you at this time. Make sense?

Today, I am just going to list all the documents that we needed. In a future post, I'll explain how we prepare these documents every year, more in-depth. I just want to give you an idea of what is or is not important.

• Proof of wage earned, including W-2s and pay stubs.
• Proof of gross receipts and expenses for your small business, and include the following:
  • A detailed description of your business including the type of work performed, products sold, services provided, hours of operation, and address;
  • Copies of all 1099-MISCs received;
  • Copies of all bank statements;
  • Copies of all credit card statements;
  • A detailed statement on how you calculate your gross receipts;
  • A sample of the advertising materials used to promote your business;
  • Copies of any professional licenses and/or certifications;
  • A description of any degrees, specialized training, or knowledge obtained to conduct your business;
  • An itemized list of expenses you paid to operate your business;
  • Records to substantiate vehicle expenses, including the following:
    • Amount for each separate expense (lease payments, repairs, maintenance, gas and oil, insurance, and other expenses) using receipts, copies of bills, and canceled checks.
    • The date of the expense or use.
    • The departure point, destination point, and distance for each business use of the vehicle and the vehicle's total mileage for the year.
    • The business reason for the expense or use of the vehicle.
    • Documentary evidence in support of all income and expenses (a receipt or canceled check, along with the invoice); documentary evidence must include the amount, date, place, and essential character of the income or expense.
• For each dependent child, you must provide:
  • Original birth certificate;
  • Copy of social security card;
  • Proof of physical placement of children, if subject to a divorce;
  • Proof of education or daycare, including child's name, dates child attended, dates child stopped attending (if applicable), primary address on file for child, primary emergency contact, and the number of credits child completed (if applicable).
• If your rented, your must provide:
  • A copy of the rental agreement;
  • Proof of rent paid with canceled checks, money order receipts, or cash receipts;
  • If the above is not available, you can submit a signed, notarized statement that includes the name and address of the landlord, address of property rented, names of persons responsible for the rent, names of all residents approved for the rental unit, date agreement executed, date each person moved in and/or out, total amount of rent received.
• If you got married, you must provide proof of the marriage, and all of your spouse's identifying information like name, social security number, and the dates that you lived together.

As you can see, there is a lot of information required. The real challenge is that all of this has to be gathered, organized, and sent so that the auditors can receive it within 30 days. Unless you have a system in place, and have kept everything required, an audit can turn into a real nightmare - especially if you are required to provide this information for more than one year. In our particular case, we had to provide two years worth of information; some people have had to provide three. The years audited also happened to be the two craziest ones for us: we had moved across state, had a new baby, and purchased a home. Talk about a lot of paperwork! And I did not have any of it organized like I do today. The good news is that if we ever receive one of these notices again, I can most likely mail out my response within 48 hours. All I need to do is visit our local copy shop and have a copy of my binder made.

It is not my intention to "scare" anyone, but I do want to help you get your financial paperwork in order. The first step, is always knowledge - knowing exactly what you would need, at least for an audit by the state of Wisconsin. Stay tuned for future posts and I'll share exactly what I prepare each year.

Blessings be upon you.