An audit is an official inspection of an individual or an organization’s accounts via an independent body, which is typically the revenue agency of the country the individual or organization belongs to. There are different avenues countries revenue agencies take when looking into a potential audit:
- Random selection
- Computer program
- Secondary files
The best way to avoid an audit is to file all the required information with your returns, file on time, and not claim deductions subject to abuse.
The most commonly audited type of income is business or professional income. Income from property such as rental income is also a target for audits. Employment income and pension income are seldom audited, although certain deductions such as moving expenses, childcare expenses, and employment expenses are often reviewed. Tax shelters such as limited partnerships are often audited as project files.
A simple way to ensure your return is done efficiently and effectively is to have a professional do the work. Stats show that up to 40% of returns done by hand contain arithmetic errors. An accountant significantly reduces the chances of errors and audit triggers such as:
- Questionable appearing investments.
- Large variation in income from year to year, or in financial statement ratios of interest to the tax man.
- Financial statements that are unusual for your industry.
- Unusual deductions or incorrect expense categories.
The best route is to be prepared and ensure when filing and submitting information to your revenue agency, that it is done correctly and on time. What better way to do that than with a professional?!