Taxpayer records. In any Sales Tax Audit, it is really important that you keep good records. A lot of the times with smaller businesses or with those businesses who don’t have a lot of employees, you’re going to find a lack of adequate records. In those situations, you want to create as much records as you can based on other third party sources of information. Your bank statements are going to be the best friend in any sales tax audit.
With your bank statements and your merchant account deposits, you can create a pattern for the sale of the business. Hopefully, your client has made cash deposits into the bank account that corroborate their sales. Ideally, you want your bank deposits to less transfers to match up to your federal income tax returns to match up to your sales tax returns. In a highly cash businesses with no records, that is a situation that creates a lot of suspicion with the Board of Equalization. You want to try and minimize the cash sales to the extent you can and try and make all your information jive to the extent you can.
Records challenges are a big issue and auditors can and frequently penalize clients for not having adequate records. To the extent, possibly your job is to document everything to the extent possible using contemporaneous data if you can and then doing the best you can to streamline your presentation in terms of making everything match and sync up even if you’re dealing with limited records. If you only have some invoices, that’s better than not but the point is to the extent you can create records either through what the client has or what third parties have. That’s the best way to go about maintaining records to set yourself up in an audit.
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