It’s officially tax season, and between now and April, individuals and corporations alike will be filing their taxes with the IRS. An unlucky number of those tax filers will find themselves facing an IRS audit later in the year. This can be triggered by any number of factors, and may even be completely random—especially for businesses. Whatever the reason for it may be, if your business is selected for an audit, are you going to be ready?
Will you have the paperwork you need ready for the IRS’s review? Will you have all of the expense reports and corresponding receipts to show to the auditor? Organizing an entire year’s worth of documents for your business can be an exhausting, overwhelming, and time-consuming task. Consider this story as an example.
How It Really Went
One construction contractor found themselves face with an IRS audit several years ago. Though they had QuickBooks for invoices and other such items, they used filing cabinets for the bulk of their documents, including:
- Invoices from suppliers
- Payment receipts for supplies
- Contracts for jobs
- Supply lists for jobs
- Bills and payment receipts for customers
- Employee payroll
- Employee timesheets
In addition to the main office, this company also had a shop on the property where certain supplies were crafted for jobs. This shop had its own filing cabinets of orders, receipts, and timesheets.
When this company learned of their upcoming audit, the office entered a state of panic. The head of finance enlisted the aid of the secretary, a summer intern, and one of the regular workers to help in sorting through and organizing all of the paperwork that would be needed for the audit. It took these 4 employees an entire week to get everything in order.
Consider the wasted time and the incredible amount of stress this situation put on this company. A worker who could have been out on jobs was kept in the office, putting the company behind schedule on work. The receptionist and intern were pulled from other tasks that needed to be completed in the office. A high-level finance executive had to focus an entire week of their time on nothing but paperwork. You can imagine how this could add up in cost to the company.
Now, let’s imagine how this very real situation could have been very different with document management.
How It Should Have Gone
Had this company been using document management software when they were informed of their audit, they would have had very little to worry about. Every receipt, invoice, and contract would have been saved in electronic format in eFileCabinet so that they could easily prove their income and expenses to the auditor.
With the quick search function and OCR, they could have found any needed document just by typing in a keyword. And with built-in document retention feature, they never would have had to worry about paperwork being misfiled, lost, or mistakenly thrown away at some point during the year. Minimal preparation would have been needed prior to the audit; perhaps a few hours to verify that everything from the previous year has been entered properly, and the company would have been all set.
Plus, with eFileCabinet’s dedicated auditor access, the audit could have gone quickly and smoothly, with absolutely no time spent shuffling through paperwork to find a requested document. This would have saved both the company and the IRS auditor a lot of time, allowing business to return to normal more quickly.
Which Would You Prefer?
So if your company ends up getting audited after tax season this year, which situation would you prefer to find yourself in? Do you want to spend a week and the time of 4 employees to get all of your paperwork in order? Or would you prefer to know that everything is already as it should be so that you don’t have to pull out your hair searching for receipts?
If you prefer the latter, then you really shouldn’t wait. Start implementing a document management system in your office now, so you can ensure that all of your paperwork is entered and organized well in advance of any potential audit. That way, you have nothing to worry about if you get that dreaded notice from the IRS.
And if you don’t end up being audited, your office will be more efficient and organized; you’ll still save time and cut costs in the process. So don’t take the gamble and wait to see if you’re going to be audited. Prepare for it now, and reap the benefits for years to come.