I shared my IRS audit experience with you in May and I got a lot of feedback, so I thought a follow-up was in order.

When something like this happens, it’s a blessing in disguise. Even though the stress and nightmare of it all seemed daunting at the time, it forced me into different habits, which in turn, are even better than the ones I was practicing.

It reminded me of one very important fact. We are always learning! No matter our age or experience level or how much we think we know… we can always work a little better, a little smarter.

So here are a few habits I’ve changed in my life after the audit:

What I was doing:
My Outlook calendar included all of my appointments, conferences, etc. Every month, I’d print it out and log mileage into an Excel spreadsheet. If it was a new place, I’d Google to see how many miles it was from where I came from. This would take me a few hours every month.

What I’m doing now:
Duh, Amy. There’s an app for that! MileIQ. I absolutely recommend this for anyone needing to track mileage. It does everything for you, as soon as you get in your car. I can add a client and every time I drive to their location, the app knows. I get a report at the end of the month that I can pop right into my tax folder. Not only does this save me hours per month, it also makes the process seamless and accurate. Better yet, 40 trips a month or less are free and if you need more trips, it’s under $60 a year for the paid version. The app is also a tax deduction, since it’s a business expense, so this is a total win-win.

What I was doing:
Since my credit card statements had the meals listed and marked as a business meeting, I thought that was enough. I was wrong. The auditor wanted to know who I was with. Even though I could pull this information by going back into my calendar, that was super time consuming.

What I’m doing now:
I’m saving not only the credit card statement, but also the paper receipt with the name of the person I was with and what the business meeting was about written right on it. This goes into the tax folder.

What I was doing:
I was using email folders to keep invoices and bills. I never thought this would be an issue, until the auditor asked for a cell phone bill and I realized it was no longer available online. I had to go back to AT&T and pay to get that bill in paper form.

What I’m doing now:
I’m keeping all my paper bills and invoices in my tax folder. Yes, it’s a lot of paper. But they send you the bill anyway, so putting it into a place you can find easily is 100% effective.

My best advice to prepare yourself in case of an audit is making sure you can PROVE that certain expenses are business related.

If you’re using a newspaper or magazine to find or contact leads, put a note into your CRM system and then print it out and place into your tax folder.

If you use a home office, talk to your accountant about taking the $5 per square foot deduction, instead of the breakdown of all your utilities. There are no questions asked with the first one, the latter requires much more in terms of substantiation and depreciation recapture when you sell the home – yeah – it gets very technical.

If you pay someone (anyone or a company) over $600, send then a 1099. Whether they claim it or not, you did your part and that’s all you can do. And get a current W-9 from all of your vendors.

One of the major questions people asked me after the audit was, “How long do you have to keep everything?”

Good question and you should always check with your tax accountant, but the rule of thumb is three years after the day you file.

The caveat to this would be paperwork related to stocks, your home, etc. Keep that paperwork until you sell those items and then an additional three years after that.

What I was doing:
What I thought was enough.

What I’m doing now:
More than enough.

There’s nothing scarier than getting a letter from the IRS. Feel confident by preparing for that scenario. In fact, pretend you’re getting audited right now and see if you could prove everything you would need to prove.

If you want to talk about how I can help, let’s get a call scheduled.

Until next month!

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