Tuesday, July 24, 2012

How to Prevent Tax Audits - Few Ideas!

Tax Audits are on rise as CRA is looking to increase tax collections and reduce deficits.
A tax audit is when the CRA reviews tax returns to determine if income, expenses, and credits are reported accurately. Avoiding a tax audit is possible by being completely honest about deductions, but audits can still occur even without any red flags on a tax return.
1. Complete & adequate books of records (as per chartered accountants Mississauga and Etobicoke.) 
Canadian tax laws generally require taxpayers to keep complete books and records for at least six years from the end of the year to which they relate. Keep all receipts and proof of payment for the various expenses that you have claimed on your tax return. Failure to provide corroborating information to the CRA may leads to comprehensive tax audit.

2. File taxes on time (as per chartered accountants Mississauga and Etobicoke)
Make sure tax filings are completed on time. Not only does this prevent incurring penalties and interest charges on late filings, it also shows that you adhere to rules and could reduce your chances of being audited.
3. Review the tax return for Consistency (as per chartered accountants Mississauga and Etobicoke) 
Try to keep the proportion of expenses to revenues consistent from year to year and CRA is unlikely to investigate. However, if there are wild fluctuations from one year to the next, the CRA may be inclined to follow-up with a request for information or an audit.

4. Review taxes for errors (as per chartered accountants Mississauga and Etobicoke)
The CRA is more likely to flag returns of taxpayers for follow-up or audit if they have found errors on a taxpayer's return in the past. You should ensure accuracy and completeness of returns prior to filing. However, if you find a mistake after filing, be proactive and file an adjustment rather than let the CRA find it for you. Always try to report your income from every source properly.
5. Investment and donation Schemes (as per chartered accountants Mississauga and Etobicoke) 
Investment and donation schemes are targeted and audited by the CRA. Tax payers participating in these schemes have a higher chance of being audited. Such claims are red flags on tax filings. If something seems too good to be true, it likely is.

If you are self employed or running a business, chances are that your taxes are more complicated and it's always a good idea to get help from a professional tax advisor.

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