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How To Avoid Getting A Tax Audit

How To Avoid Or Minimize Getting A Tax Audit 2018 In New Zealand

How To Avoid (Or Minimize) Getting A Tax Audit

Not all audits are done the same, although a set procedure is followed. Depending on your business-type, your audit may require only one visit while others will stretch over time and regular talks. But here are some tips on how to avoid (or minimize) being audited by the IRD.

 

1.   Look For Risks

Even if you are running a small-to-medium enterprise (SME) with only one or two people, IRD views these as a big source of tax revenue. Granted that most do not have tax agents knocking on their door, but it is not a good idea to ignore your bookkeeping and taxes. What if you have an overseas bank account? What if you're buying and selling a lot of properties? It doesn't matter to IRD, they will randomly check-in to make sure you are declaring your income.

 

2.   Always Be Prepared

Just like taking your business seriously, take your taxes seriously too - that's just good thinking. It’s unfortunate that you will be paying taxes on running a successful business, but in the long run, when you want to sell your business, how will you convince and proof to your prospective buyer that you've been generating triple of what the records show? And that too without raising suspiciousness from the IRD.

 

3.   Keep Straight Records

Make sure you've got your systems and documentation in place so when IRD asks about a transaction, you can just quickly pull out the answers to any questions, thus helping you avoid a deeper probe. An added bonus to having perfect record is, it becomes so easy to claim all deductions you're entitled to.

 

4.   Know Your Accountant

IRD is known to keep an eye out on accountants whom they labeled, 'dicey'; even if they are highly qualified and certified chartered accountants. And as a client, it is hard for you to tell whether your accountant is really helping you out or not. The best direction to take is to ensure your accountant is reputable, and see to it that they file your tax returns on time.

 

5.   Be On Time

It makes sense to always be on time with payment of your taxes and filing your returns. For one thing, you avoid paying late fees, thus saving you money. And for another, which is more important, you will not stand out too much from the crowd and hence the IRD will not notice you or pay close attention to your business.

 

6.   Be Up-to-Date

You don't want to be asked a lot of questions about things that don't look right, according to the IRD, but is completely honest to you. Always keep them (or us) informed if you are starting a business, closing down a business, changing an activity, expanding into a new one, employing more staff or basically trying something different from your usual routine.

 

7.   Nobody Gets Away

All those stories about businesses making huge amounts of money, but only paying $500 tax per year are ninety percent of the time just lies. There may be one or two that is true, but even so, their situation is completely different from yours - taking huge risks, have tax-paid income from a trust, etc.

 

8.   Get Audit Insurance

Get yourself a tax audit insurance. When you've spent all day on your bookkeeping, payroll and filing returns, you are bound to make a mistake at some point - it's only human nature. This is particularly more complicated and true if you have Kiwisaver, receiving/paying court fines and/or paying child support.

 

If IRD decides to pick on you to audit, they will always find a way to justify their reasons for doing so - it's easy for them. So pull up your socks and hire an accountant like us, and we can get down to business.

 

Infographic on How To Avoid (Or Minimize) Getting A Tax Audit

 

 

About The Author

Accounting4Me

This blog post was made and written by our panel of IRD Registered Chartered Accountants. Like this post? Please share with your fellow Kiwi so we can help them out!

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